The Federal Reserve cut its key interest rate by one-quarter of one percentage point, the first rate cut since the beginning of the 2008 recession in hopes of warding off a global economic slowdown prompted by trade wars and uncertainty with Britain's exit from the European Union.
The rate cut comes during a time of unprecedented economic expansion that's lasted long enough to become the longest on record. Despite record-low unemployment numbers and record highs in the stock market the Fed's move is acknowledge as a preemptive move against potential fallout from Brexit and President Donald Trump's continued trade war with China. Federal Reserve Chairman Jerome Powell cited "the implications of global developments for the economic outlook as well as muted inflation pressures" as the reason for the rate cut.
"Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft," the Federal Reserve wrote. "On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed."
The new rate is set at a range of 2 and 2.25 percent. That number is used by banks across the country to determine how much interest to charge on consumer debt, like credit cards, car loans, and home equity loans. The benefits of a rate cut of one-quarter of one percentage point won't be immediately apparent to consumers. Financial institutions often have language in credit card contracts that allow them to use the highest prime rate in effect during the preceding 60-day period. For a consumer holding $10,000 in credit card debt, their minimum payment would be lowered by just $2 a month.
Rates remained at or near zero for nearly seven years following the Great Recession, before the Fed raised rates nine times since 2015.
Trump has repeatedly slammed the Federal Reserve for not slashing rates, saying that the rate hikes came "far too early and far too severely." The president also noted that other central banks across the world have cut their rates, which put him "at somewhat of a disadvantage."
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