The Federal Reserve approved its second consecutive interest rate cut following its November meeting, telling investors that it’s continuing its push to “right-size monetary policy.”
The benchmark Fed funds rate has a target range of 4.5 percent to 4.75 percent. That rate can influence everything from mortgages to car loans to credit card rates.
Taking a step back, it’s important to remember that the Fed has a dual mandate when managing monetary policy. Since 1977, Congress has tasked the Fed with price stability while maximizing employment.
As the two charts show, in recent months, the Fed appears more successful at managing inflation than boosting employment. Inflation fell to 2.4 percent in September, but the economy added only 12,000 jobs in October. So, while it’s upbeat news on inflation, it’s a bit concerning that job creation has trended lower for most of 2024.
Remember, the U.S. economy is a massive (nearly $30 trillion GDP) and complex system influenced by a wide range of factors. So, the Fed has many factors to consider when adjusting monetary policy to guide inflation and employment.
As the Fed continues to adjust its policies, it’s clear that balancing inflation control with job growth remains a delicate challenge. Moving forward, it will be crucial to watch how these changes impact both the economy and your financial decisions in the coming months.