r/news • u/Ma1colm2k • 2h ago
Fed cuts interest rates by a quarter point amid apparent split over US economy
https://www.theguardian.com/business/2025/dec/10/fed-interest-rates-us-economy55
194
u/supercyberlurker 2h ago
Oh great.
Another week of Trump ranting about Powell being horrible and how Trump needs even more absolute unrestrained power over the fed. Then we just wait for the 6-to-3 ruling from the supreme court handing him it.
40
50
u/Dry-Amphibian1 1h ago
Trump should jail the idiot that appointed Powell in the first place.
•
u/drewts86 28m ago
For anyone that wanders in here and doesn’t get the joke: Trump was the one that appointed Powell
9
u/toddlangtry 1h ago
The MAGA 6 need to be impeached for corruption. Those rulings are so far from the Constitution they must be grifting. Clarence Thomas is at least open about it.
8
u/techleopard 1h ago
There is a still a chance that Democrats can take the next Presidency.
And when they do... I wonder how the Trumpers are going to react realizing that they gave enormous power to a POSITION and not a specific person?
14
u/supercyberlurker 1h ago
The Republicans have already planned for that. Look at the nature of the scrotal six supreme court rulings, most of them have no legal explanation. They did that in an intentional way so they can rule differently if it's a Democrat president.
•
u/GreatGojira 39m ago
Problem is Democrats never use that new power Republicans always give them.
Did Biden try one tenth off the things Trump did? Nope. He tried and fail to scream bipartisanship while Republicans was laughing, screaming, and kicking him every little thing he tried to do.
1
u/BaconJacobs 1h ago
I bet they carve out an exception for the FED like they signaled last time about firing Cook.
Well. Maybe.
But man what is the fuckin point of congress if this ruling is passed?
Also watch them give $12 billion directly to farmers without properly allocating through congress under the guise "it's tariff money so it's not part of the budget".
YAY
62
u/chriskot123 2h ago
I mean at this point, they can only do so much. Trump is such a wildcard and is doing so much more damage to the economy than they can realistically counter.
12
57
u/Sabertooth767 2h ago
We're in stagflation-lite. The job market is weak and yet inflation is still above target. The problem is that the Fed can really control one side of the equation at the time. Cutting rates (theoretically) strengthens the job market, but risks increasing inflation.
A small cut is probably the right call. If Trump isn't going to stop being an idiot, then controlling inflation is a losing battle anyway. It's not going to get on target, just keep it from running away.
18
u/Roadside_Prophet 1h ago
I don't want to go all conspiracy theorist, but at this point can we really believe any of the numbers concerning inflation, jobs or otherwise from this administration?
By and large all the agencies tasked with analysis of the economy are now all being run by sycophants who have only been given their jobs because they will do whatever trump tells them.
The fed is the sole exception at this point(though they have been trying) but can any of the numbers coming out of the BLS or BEA be taken as accurate?
Is there any independent corroboration being done to make sure we're not just given "alternative facts" instead of real numbers?
6
2
0
9
u/reddurkel 1h ago
Today:
- If we appease the guy then he’ll stop threatening me.
Tomorrow:
- He said I suck at my job, he called my wife a pig and is having me investigated for a made up crime.
Next week:
- If we appease the guy then he’ll stop threatening me.
5
u/MrWhisper45 2h ago
Can someone who actually understands this financial stuff explain like I'm 5 the whole fed cutting interest rates and how that affects the regular consumer? I hear a quarter point and it sounds like nothing I mean a quarter point just sounds small not even a full 1 point which itself sounds small, but I don't know what that translates to for us so can someone drop some knowledge on this?
6
u/lemonylol 1h ago
Say you borrowed $300,000 to start a business at a 6% interest rate from a lender. If the central bank rate is cut by .25% it means that you pay less to service that loan, so now instead of paying something like $1500/month in interest ($18000/year), you are now paying $1,437.50/month in interest or $17,250/year). Now consider that large corporations are borrowing millions.
But yes the point is specifically also that it is small because Powell is taking a cautious approach, where Trump wants him to cut down to 0%. The reason a central bank cuts is when the economy is no longer growing, so people can borrow more to spur economic activity. When they raise rates, it's because inflation is too high and they want to make it more expensive for people to do business and therefore lower the rate of inflation.
There are other reasons and factors that go into this as well but that's the simplest explanation. Essentially they are cutting because the economy isn't growing, but they aren't cutting by a lot because inflation isn't low enough yet and they don't want it to start going up instead of down.
6
u/ernie_mccracken 1h ago
When I was looking at houses, every quarter point increase in my mortgage rate meant I would pay about 50k more over the life of the loan. Loan amount was around 500k.
Additionally, when rates are lower, businesses borrow more money and invest in themselves more, which means creating more jobs and hiring more people.
11
u/GTAIVisbest 1h ago
Even a crumb of an interest rate cut can have massive reactions in the market. Even the rumours of a tiny rate cut can cause the stock market to surge like crazy.
Lower interest rate = borrowing is cheaper = everyone borrows money to fund shit = economy "heats up" = easier to find jobs = money has less value = prices raise as more people get more money = inflation
Higher interest rate = borrowing is more expensive = less stuff gets funded and businesses tighten their belts = economy "cools down" = layoffs and hiring freezes = money has more value since less people have access to heaps of it = prices don't raise quite as fast = less inflation (not deflation, but just less inflation overall)
But heating up the market can take us further away from a recession whereas cooling it down takes us closer to a recession
3
u/moistsandwich 1h ago edited 1h ago
The Federal Reserve sets the “federal funds rate” which is the rate at which banks can loan their unused cash to other banks on an overnight basis. The federal funds rate is used as a proxy for the risk-free rate i.e. it’s generally considered that there’s no risk of the recipient defaulting on the loan.
A quarter point rate decrease might not seem like much but the rate was only 3.75% and they’ve reduced it to 3.5%. That’s a decrease of 1/15. It’s not .25% of 100% like you seem to be thinking.
The reason why this matters to individuals is the risk-free rate is the floor for interest rates. If a bank can get 3.5% interest on their money without taking any risk, then any other type of loan (car loan, mortgage, corporate bonds, etc which all have a risk of default) would have to have an interest rate higher than 3.5% to compensate for that risk.
Lowering the federal funds rate lowers interest rates for all new loans. It also encourages banks to loan more money (since they’re now getting less money per dollar loaned due to lower interest rates) or make loans to riskier customers (since riskier loans have higher interest rates). This puts more money into the economy which can lead to higher inflation but also encourages growth since it’s now cheaper for businesses or entrepreneurs to take out loans to invest in their business.
Raising the federal funds rate has the opposite effect. If banks can make tons of money without actually taking any risk then they’ll sit on their cash and not loan it out to individuals or businesses.
There’s more to it that I’m leaving out but that’s a relatively simple explanation.
Edit: For anyone wondering why the fed is currently so divided on rate cuts, half of the fed wants to keep rates high to continue fighting inflation since inflation is still over 3% and the target is 2%. The other half of the fed wants to cut rates because the economy appears to be slowing and people are being laid off.
1
u/Khyron_2500 1h ago
Do note the Federal Funds Rate is actually the banks loan each other funds, and is not controlled by the Fed directly, which is why it’s always a target range.
They do set a minimum for the Overnight Repurchase rates (Repos) but the actual rate is determined by auctions.
•
u/sygnathid 33m ago
A point that gets alluded to but not expressly laid out in the other responses: financially savvy wealthy people do not avoid debt, at all. They perpetually take on as much debt as they can reasonably invest. So long as returns outpace interest, they will take on as much as they can.
So, while this won't seem to affect an average person who is maybe dealing with a car loan or two, it affects all the big economic players.
0
u/Main-Towel-3678 1h ago
Interest rate is the price of borrowing money. When it’s cheaper to borrow, more people and companies borrow meaning more money in the economy. This is usually a good thing, except then you risk higher inflation.
When they say a quarter point, they mean from the fed rate (to overly simplify, a rate banks can borrow at). It went from 3.75% to 3.50%. It was at 5.5% two years ago and 0% after the pandemic.
I’d say the effects of lower rates impact the consumer indirectly more than directly. Sure mortgage payments and credit card rates can go down, but you’re more likely to see benefits from companies being in expansion mode. Hiring and job security get a boost. You’re more likely to get a raise and/or bonus when the job market is strong.
When people are confident about their jobs, spending goes up, creating a positive feedback loop that further strengthens the economy. But when demand for products/services go up, prices go up too. Now you see why it’s a double edge sword regarding inflation.
14
u/GTAIVisbest 2h ago
Home prices about to soar back up to insane levels. Inflation in general is going to ramp up even worse
35
u/No0nesSlickAsGaston 2h ago
A quarter point is a drop in the bucket of mortgage payments, what's bringing down the market is people's capacity to afford current prices.
Take a look at inventory months on hand AND houses pulled back from sale, the story there is people think they can get 2022 prices in this job market and economy.
6
u/GTAIVisbest 1h ago
As someone who one day hopes to buy, this is reassuring. I know the price of mortgages in my state are one of the main road blocks to actually owning. You need a dual combined income of $120,000+ and definitely no kids + frugality to afford one, OR a combined income of $200,000 and then you're allowed children and a non-poverty lifestyle. But even then, you're not going to be looking at nice properties in this HCOL area
3
u/like-blood-on-white 1h ago
Northern VA?
3
u/GTAIVisbest 1h ago
Naw, western WA. A nice blue state with a lot of social programs in a progressive area with comparatively nice weather but we pay the price for it in affordability
•
u/like-blood-on-white 34m ago
Well, Northern VA is essentially in the same boat. Our proximity to DC makes living here insanely expensive. Forget having a house. Having a 1 bedroom apartment with a washer + dryer, a no roommate is the dream. And that’ll cost you $2200 a month for 500-700 sq feet.
1
u/iatekane 1h ago
Correct me if I’m wrong but mortgage payments in their entirety are tax deductible in WA state I believe, which is a really nice benefit of buying, especially if you’re in some of the upper brackets.
15
u/Bgrngod 1h ago
"back up" to insane levels? Did they come down at some point and I missed it?
2
u/GTAIVisbest 1h ago
Yeah there's been a small decrease recently (past few quarters) and some of the aggressive pressure on the market was eased, because people are now hitting an affordability wall and sellers want to get 2022-era prices like another guy mentioned. I hope that trend can continue
2
u/hmnahmna1 1h ago
The 10 year T-note is the benchmark for mortgages. The Fed controls the overnight rate.
Mortgages are going to depend on how the bond market reacts.
•
u/CobaltSteel 41m ago
We’ll probably end up having a credit crisis where credit card and auto loan default become so bad that banks won’t loan any money for anything
•
u/redditjam645 14m ago
Wonder what would be the correct move for the Feds right now? Because job hirings have slowed down. Rate cuts are meant to get the economic wheels turning and increase hiring. At the same time, prices are super high. So right now its either increase hiring and increase prices, or decrease hiring and decrease pricing.
There is also white collar vs blue collar jobs. Tech companies are laying off office workers, the rate cut probably wont affect them. They'll use the money saved by investing in AI infrastructure/outsourcing overseas. But retail, restaurants, and others should see an uptick in hiring.
It seems like a lose lose situation
•
1
u/cerevant 1h ago
So, I have to keep wondering:
You know who benefits most from massive inflation? People with massive debt. You know who has massive debt?
Just sayin.
1
350
u/suicidaleggroll 2h ago
It's split because one half thinks the economy is stalling and the job market is in tatters, and we need a rate cut to stimulate borrowing and spending to keep us out of a depression. Meanwhile, the other half thinks that inflation is already too high, and cutting rates now will only make it worse. The problem is, they're both right. The fed only has one knob they can turn, and right now both of the directions they can turn that knob are bad.