WASHINGTON — The Federal Reserve lowered its benchmark interest rate today, taking its first step toward reversing the aggressive tightening campaign that has shaped the U.S. economy since 2022, and signaling growing confidence that inflation is on a sustainable path back to the central bank’s 2% target.
The quarter-point cut moves the federal funds rate into a range of 3.5% to 3.75%, ending a prolonged period in which borrowing costs sat at their highest level in more than two decades. Fed officials said cooling price pressures and signs of moderating economic activity opened the door for a cautious easing cycle.
“Inflation has continued to move lower, and our outlook now supports a modest adjustment to the policy stance,” Fed Chair Jerome Powell said at a news conference. He added that the central bank would proceed “carefully,” watching for any signs that price growth could reaccelerate.
Months of Debate
As the CU Daily has been reporting, the decision follows months of debate among policymakers over how quickly to pivot away from restrictive policy. While inflation has slowed sharply from its 2022 peaks, core price growth has remained somewhat sticky, and the labor market — though cooling — has stayed resilient.
ACU Response
“The FOMC cut rates for the third meeting in a row, but signaled a higher bar for further moves in 2026. Six of 19 members indicated on their forecasts that they opposed a rate cut at this meeting, and seven believe rates should not decline in 2026,” America’s Credit Unions’ chief economist, Curt Long, said in a statement. “However, the committee also expects unemployment to decline next year alongside moderating inflation. For the hawkish faction, it will likely take a meaningful rise in unemployment to justify more rate cuts next year.”
What It Means
The rate cut is expected to bring at least modest relief to CU members, households and companies that have faced elevated borrowing costs for mortgages, credit cards, auto loans and business credit lines.
Economists say mortgage rates, which move more closely with bond yields than with the Fed’s benchmark rate, may drift lower as markets price in additional cuts. That could help revive the sluggish housing market. Lower rates also stand to ease interest burdens for credit card borrowers, whose APRs have climbed above 20% on average in recent years.
For businesses, especially small firms dependent on short-term financing, the cut offers some breathing room after a period of tight credit and rising costs.
Not a ‘Victory’
Still, Powell cautioned that the path ahead remains uncertain. “We are not declaring victory,” he said. “We’ll continue to evaluate incoming data and adjust as needed to sustain this progress.”
As the CU Daily reported earlier, financial markets largely anticipated the move, and investors will now watch closely for signals on how many cuts Fed officials expect in 2026.
