US Elections 2024: Donald Trump, Kamala Harris brace for Fed's interest rate cut

The Federal Reserve is poised to reduce interest rates for the first time in four years on Wednesday, September 18.

The Federal Open Market Committee is anticipated to announce a modification to the federal funds rate, which currently stands between 5.25 percent and 5.50 percent. This rate, which governs the cost at which U.S. banks lend to one another, also influences interest rates on consumer financial products such as credit cards and mortgages.

During the peak of the COVID-19 pandemic in 2020 and 2021, the interest rate was held at 0 percent for two years. However, in March 2022, the Federal Reserve began raising rates to combat escalating inflation. This upward trajectory paused eighteen months later, and since July 2023, the Fed has implemented eight consecutive pauses on rate increases.

Given the strain of persistent inflation on American finances, a reduction in interest rates has been eagerly awaited. Analysts are divided on the extent of the anticipated cut, with some projecting a 25 basis point reduction (0.25 percent) and others predicting a more substantial 50 basis point decrease.

A potential reduction in interest rates could provide a modest boost to the sluggish housing market, experts suggest. Although the Federal Reserve does not directly influence mortgage rates set by lenders, banks have already started adjusting their rates in anticipation of the Fed's announcement.

Stephen Cates, former wealth management advisor and principal financial analyst for RetireGuide.com, indicated that a rate cut might spark increased interest in both new and existing homes, particularly if further reductions follow in the coming months.

"Current homeowners are already in a favourable position; the real impact will be on new buyers who are hoping for relief. Approximately 88 percent of homeowners already enjoy a rate below six percent," Cates explained. "With rates trending down since the expectation of a rate cut emerged in August, potential homebuyers may be more inclined to enter the market."

Mike Pappas, CEO of The Keyes Company, an independent brokerage in Florida, noted that while a lower Fed rate generally results in cheaper borrowing costs, its direct impact on home prices can be complex and less predictable.