When inflation reached its highest levels in decades in 2022, the Federal Reserve began tackling the issue by raising interest rates. At its peak, the federal funds interest rate reached 5.5%, its highest level since 2001. On Sept. 17, the Fed cut the interest rate by 0.25 percentage points to a target of 4% to 4.25%.
The rate cut didn’t come as a surprise to most people, and there are thoughts that the Fed may cut rates once or twice again this year, per the latest “dot plot” (a chart showing where each Fed policymaker expects interest rates to be in the future).
Interest rates have ramifications for the U.S. economy. Higher rates make borrowing more expensive, which aims to slow growth and cool inflation. Lower rates make borrowing cheaper, which helps business expansion and consumer spending. This will affect many businesses, but there are three in particular I want to keep an eye on.