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The Fed just made a jumbo rate cut. Here are 5 takeaways on what it means for mortgages and more.
In making its first interest rate cut in more than four years, the Federal Reserve went big — a decision that took some economists and policy experts by surprise, while also providing cheer to Wall Street and consumers eager for relief from high borrowing costs.
The Federal Reserve on Wednesday lowered its benchmark rate by 0.50 percentage points, or double the more typical 0.25 percentage point cut. The moment marks a critical turning point in the Fed’s fight against the hottest inflation in 40 years, which resulted in a flurry of rate hikes that pushed the bank’s federal funds rate to its highest in 23 years.
Behind the Fed’s decision to make a jumbo cut are its efforts to juggle its so-called “dual mandate” to maintain stable prices — in other words, to keep inflation low — and ensure full employment. But the cut also carries implications for the broader economy, as it will influence consumers’ and businesses’ decisions about everything from major purchases to saving.
“The messaging from the Fed is inflation has slowed, and because of that we don’t need rates at such high levels,” Veronica Clark, an economist at Citi, told CBS News. “That will impact affordability for things like new homes, new cars or credit cards, and so the consumer will eventually feel the impact of lower rates.”
Here are 5 takeaways about Wednesday’s jumbo cut.
A so-called “soft landing” could be near
One concern among economists was whether the U.S. would be able to navigate a so-called “soft landing,” essentially sidestepping a recession despite headwinds created by the highest interest rates in 23 years.
At a Wednesday press conference, Federal Reserve Chair Jerome Powell stressed he isn’t seeing “anything in the economy right now that suggests that the likelihood of a downturn is elevated.” Instead, he painted the portrait of a solid economy that has so far skirted a recession.
“The U.S. economy is in a good place, and our decision today is designed to keep it there,” Powell said, when asked at a Wednesday press conference by CBS News’ Jo Ling Kent about the message the Fed was sending by making a large cut.
Economists and investment experts noted that the jumbo rate cut could help the U.S. dodge a downturn.
“The decision, combined with Powell’s messaging, bolsters our optimism in our base case call for a soft landing,” Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management, wrote in an email.
The job market is slowing — but still solid
The Federal Reserve’s decision to cut this month was influenced by weaker data from the labor market, with a disappointing July jobs report followed by a Labor Department data revision that showed the U.S. added 818,000 fewer jobs in the 12 months ended March 2024 than originally reported.
To be sure, the job market is far from the supercharged hiring during the pandemic, when employers sought to add workers while also struggling with labor market shortages, which caused wages to spike. But Powell noted that the current unemployment rate of 4.2% is historically low, and that while hiring is moderating, the labor market remains fairly solid.
“Anything in the low fours is really a good labor market,” Powell said. “Participation is at high levels.”
But in cutting interest rates by 0.50 percentage points, the Fed wants to ensure the labor market doesn’t slow from here. “We believe, with an appropriate recalibration of our policy, that we can continue to see the economy growing and that will support the labor market,” Powell noted.
It’s not “mission accomplished” yet on inflation
Powell stressed that the decision to cut was made after seeing progress on the Fed’s goal to cool inflation toward its 2% annual target — but added that the central bank isn’t yet ready to declare victory.
“We’re not saying ‘mission accomplished’ or anything like that, but I have to say, though, we’re encouraged by the progress that we have made,” Powell said.
Even so, Powell expressed confidence that inflation will continue to decline, eventually reaching the central bank’s 2% goal. The Federal Open Market Committee (FOMC)’s members are predicting that Personal Consumption Expenditures (PCE), a measure of inflation tracked by the Fed, will hit 2.3% in 2024, and then fall to 2.1% in 2025.
Expect more rate cuts from the Fed
The Fed also forecast additional rate cuts this year and in 2025, setting the stage for more relief on borrowing costs for consumers and businesses.
The Fed’s economic projections show that FOMC members are pegging the median 2024 federal funds rate at 4.4%. That would represent a roughly 1 percentage point reduction from its prior level — in other words, the central bank is projecting another 0.50 percentage point reduction by year end.
But with two meetings left in 2025 — scheduled for November and December — it’s unclear whether the Fed will opt for another jumbo cut at one of those meetings, or cut by 0.25 percentage points at both, economists noted.
“We see the choice between a 25bp and 50bp cut in November as a close call,” Goldman Sachs economists wrote in a Wednesday research note. Powell “said that 50bp should not be assumed to be the new pace, but he emphasized that the FOMC will be ‘making decisions meeting by meeting based on the incoming data.'”
The federal funds rate is forecast to stand at 3.4% by the end of 2025, according to the FOMC’s projections.
The housing market could see some relief
Mortgage rates have already eased in anticipation of the Fed’s rate cut, and could continue to see reductions. But the Fed’s rate decisions are just part of the factors that influence home loan rates, which are also impacted by economic trends such as the labor market and housing demand.
Powell noted that the lower mortgage rates could help thaw the housing market, which has been frozen by the low rates many homeowners locked in during the pandemic, when people could refinance into 30-year fixed mortgages with rates of about 3% — less than half of today’s rates.
“As rates come down, people will start to move more, and that’s probably beginning to happen already,” Powell said.
But, he cautioned, the housing market is also impacted by issues beyond the Fed’s control, including a lack of housing supply. “It’s hard to zone lots that are in places where people want to live. And you know, where are we going to get the supply?” he noted. “And this is not something that the Fed can can really fix. But I think as we normalize rates, you’ll see the housing market normalized.”
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Sen. Duckworth says Trump defense secretary pick is “flat-out wrong” about women in combat roles
Democratic Sen. Tammy Duckworth said Sunday that Pete Hegseth, President-elect Donald Trump’s pick for defense secretary is “flat-out wrong” in his view that women should not serve in the military in combat roles.
“Our military could not go to war without the women who wear this uniform,” Duckworth said on “Face the Nation with Margaret Brennan.” “And frankly, America’s daughters are just as capable of defending liberty and freedom as her sons.”
Trump tapped Hegseth, a former Fox News host and Army veteran who served in Iraq and Afghanistan as his pick to head the Defense Department earlier this month. The 44-year-old has drawn criticism for his stance on women in combat roles, along with his level of experience.
Duckworth, who in 2004 deployed to Iraq as a Blackhawk helicopter pilot and sustained severe injuries when her helicopter was hit by an RPG, outlined that women who serve in combat roles have met the same standards as men, passing rigorous testing. She said Hegseth’s position “just shows his lack of understanding of where our military is,” while arguing that he’s “inordinately unqualified for the position.”
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“Our military could not go to war without the 220,000-plus women who serve in uniform,” Duckworth said. She added that having women in the military “does make us more effective, does make us more lethal.”
Hegseth has also drawn scrutiny amid recently unearthed details about an investigation into an alleged sexual assault in 2017. Hegseth denies the allegation and characterized the incident as a consensual encounter. The Monterey County district attorney’s office declined to file charges as none were “supported by proof beyond a reasonable doubt.” His lawyer has acknowledged that Hegseth paid a confidential financial settlement to the woman out of concern that the allegation would jeopardize his employment.
Duckworth, an Illinois Democrat who serves on the Armed Services and Foreign Relations Committees, said it’s “really troubling” that Trump would nominate someone who “has admitted that he’s paid off a victim who has claimed rape allegations against him.”
“This is not the kind of person you want to lead the Department of Defense,” she added.
The comments come after Trump announced a slew of picks for top posts in his administration in recent days. Meanwhile, one pick — former Rep. Matt Gaetz for attorney general — has already withdrawn his name from consideration after he faced intense scrutiny amid a House Ethics Committee investigation and a tenuous path to Senate confirmation.
While Duckworth acknowledged that she’s glad her Senate Republicans “held the line” on Gaetz and also elected Sen. John Thune as leader over a candidate favored by many in Trump’s orbit, she said she’s “deeply concerned” her Republican colleagues will green light Trump’s nominees.
“From what I’m hearing from my Republican colleagues on everything from defense secretary to other posts, it sounds like they are ready to roll over for Mr. Trump,” Duckworth said.
But Duckworth didn’t rule out supporting some of the nominees herself during the Senate confirmation process, pledged to evaluate each candidate based on their ability to do the job, and their willingness to put the needs of the American people before “a retribution campaign for Mr. Trump.”
Meanwhile, a CBS News poll released on Sunday found that 33% of Americans say Hegseth is a “good choice” for defense secretary, including 64% of Trump voters. But 39% of Americans said they hadn’t heard enough yet about the pick. More broadly, Americans generally say they want Trump to appoint people who’ll speak their minds and who have experience in the field or agency they’ll run.
Sen. Rand Paul, a Kentucky Republican who also appeared on “Face the Nation” on Sunday, said he believes that Hegseth can run the massive Defense Department, despite his lack of experience managing a large organization. Though he did not address Hegseth’s comments about women in combat roles, Paul said he believes the “vast majority of people” support leaders who are picked based on merit, citing Hegseth’s criticism of the Pentagon for what he says has been a move away from merit-based hiring and toward hiring based on “racial characteristics.”
Hezbollah fired at least 185 rockets and other projectiles into Israel on Sunday, wounding seven people in the militant group’s heaviest barrage in several days, in response to deadly Israeli strikes in Beirut while negotiators pressed on with cease-fire efforts to halt the war.
Meanwhile, an Israeli strike on a Lebanese army center killed one soldier and wounded 18 others on the southwestern coastal road between Tyre and Naqoura, Lebanon’s military said. Israel’s military expressed regret and said the strike occurred in an area of combat against Hezbollah, adding that its operations are directed solely against the militants. The strike was under review.
Hussein Malla / AP
Israeli strikes have killed over 40 Lebanese troops since the start of the war between Israel and Hezbollah, even as Lebanon’s military has largely kept to the sidelines.
Lebanon’s caretaker prime minister, Najib Mikati, condemned it as an assault on U.S.-led cease-fire efforts, calling it a “direct, bloody message rejecting all efforts and ongoing contacts” to end the war.
“(Israel is) again writing in Lebanese blood a brazen rejection of the solution that is being discussed,” a statement from his office read.
The strike occurred in southwestern Lebanon on the coastal road between Tyre and Naqoura, where there has been heavy fighting between Israel and Hezbollah.
Hezbollah began firing rockets, missiles and drones into Israel after Hamas’ Oct. 7, 2023, attack out of the Gaza Strip ignited the war there. Hezbollah has portrayed the attacks as an act of solidarity with the Palestinians and Hamas. Iran supports both armed groups.
Israel has launched retaliatory airstrikes since the rocket fire began, and in September the low-level conflict erupted into all-out war, as Israel launched waves of airstrikes across large parts of Lebanon and killed Hezbollah’s top leader, Hassan Nasrallah, and several of his top commanders.
Hezbollah fired a total of around 160 rockets and other projectiles into Israel on Sunday, some of which were intercepted, the Israeli military said.
Oded Balilty / AP
Israel’s Magen David Adom rescue service said it was treating two people in the central city of Petah Tikva, a 23-year-old man who was lightly wounded by a blast and a 70-year-old woman suffering from smoke inhalation from a car that caught fire. The first responders said they treated three other people in northern Israel, closer to the border, including a 60-year-old man in serious condition.
It was unclear whether the injuries and damage were caused by the rockets or interceptors.
Israeli airstrikes early Saturday pounded central Beirut, killing at least 20 people and wounding 66, according to Lebanon’s Health Ministry.
Israeli attacks have killed more than 3,500 people in Lebanon, according to Lebanon’s Health Ministry. The fighting has displaced about 1.2 million people, or a quarter of Lebanon’s population.
On the Israeli side, about 90 soldiers and nearly 50 civilians have been killed by bombardments in northern Israel and in battle following Israel’s ground invasion in early October. Around 60,000 Israelis have been displaced from the country’s north.
The Biden administration has spent months trying to broker a cease-fire, and U.S. envoy Amos Hochstein was back in the region last week.
The European Union’s top diplomat called for more pressure on both Israel and Hezbollah to reach a deal, saying one was “pending with a final agreement from the Israeli government.”
Josep Borrell spoke Sunday after meeting with Mikati and Lebanese Parliament Speaker Nabih Berri, a Hezbollah ally who has been mediating with the group.
Borrell said the EU is ready to allocate 200 million euros ($208m) to assist the Lebanese military, which would deploy additional forces to the south.
The emerging agreement would pave the way for the withdrawal of Hezbollah militants and Israeli troops from southern Lebanon below the Litani River in accordance with the U.N. Security Council resolution that ended the 2006 war. Lebanese troops would patrol the area, with the presence of U.N. peacekeepers.
Lebanon’s army reflects the religious diversity of the country and is respected as a national institution, but it does not have the military capability to impose its will on Hezbollah or resist Israel’s invasion.
Sen. Tammy Duckworth says Pete Hegseth is “flat-out wrong” about women in combat roles
Sen. Duckworth says Trump defense secretary pick is “flat-out wrong” about women in combat roles
Israeli strike kills Lebanese soldier as Hezbollah fires at least 185 rockets at Israel
Sen. Tammy Duckworth says Pete Hegseth is “flat-out wrong” about women in combat roles
Sen. Duckworth says Trump defense secretary pick is “flat-out wrong” about women in combat roles