The Federal Reserve is widely expected to start cutting interest rates this week, marking an inflection point in the economy.
The move is expected to have an effect on financing rates in various consumer sectors, as well as on labor and employment conditions.
It isn’t known how quickly subsequent rate cuts will happen or what the terminal interest rate will be, though Fed Chair Jerome Powell told lawmakers earlier this year that the era of near-zero interest rates is probably over. Fed projections show the median interest rate dropping to 4.1 percent next year and 3.1 percent in 2026.
Banks are preparing for the possibilities of both a quarter-point rate cut and a half-point cut.
“If the Fed opts for a [quarter-point] reduction, the Chair will have to project confidence about the outlook and assuage concerns about the Fed falling behind the curve,” Deutsche Bank analyst Matthew Luzzetti and others wrote in a commentary Tuesday.
“Conversely, if they cut by [a half-point], Powell will need to avoid sending negative signals about the economy and dissuade markets from pricing a sequence of large reductions,” they added.
Here are five ways workers and consumers are likely to perceive interest rate cuts in the economy.
Mortgage rates will come down
The housing market is still enduring a shortage of units, and the longer-term trend of asset inflation is compounding affordability issues in the sector. That has increased rent burdens.
But a drop in interest rates should allow mortgage rates, which have already been descending, to fall further. The 30-year fixed rate mortgage is currently at an average of 6.2 percent, its lowest level since February 2023.
Mortgage rates move in sync with the 10-year U.S. Treasury yield,........