Luisa Bernardino

Introduction
The Federal Reserve is the central bank of the U.S. Its main priority is to maintain price stability, promote maximum employment, and support long-term interest rates. The Federal Reserve adjusts interest rates, regulates banks, and controls the money supply to stabilize the U.S. economy and financial system.
This September of 2024, the Federal Reserve decreased interest rates to a range between 4.5-5.0%. They lowered it recently to support growth and stabilize a slowing labor market. Often, the Federal Reserve will adjust interest rates to control inflation, promote employment, and stabilize the Economy. A change in the Federal Reserve’s interest rates can have a direct impact on students’ financial decisions, from affording college loans to managing the cost of everyday purchases.

Reasons Behind the Recent Rate Changes
The federal funds rate was lowered by 50 percentage points by the Federal Reserve in September 2024, from a high 5.25–5.50% to a much better 4.75–5.00%. This rate drop was brought on because of a small but significant increase in unemployment rates and falling inflation, which had approached the Federal Reserve’s 2% target.
The Federal Reserve’s choice is following the trajectory of its long-term goals of controlling inflation, promoting sustainable growth, and stabilizing the economy. This easing is part of a larger plan, and as the Fed monitors the economy in 2025, additional reductions may be made.

Economic Impacts
What does this mean for you as the consumer? The short-term impact exists due to reduced borrowing costs which influences loans and credit, while also stimulating business activities. Because the Fed rates heavily influence local bank rates, borrowing will become cheaper, enticing consumers to make big purchases such as property. As consumers spend more and more money, industries will stimulate economic growth creating a snowball effect. Additionally, lower lending fees spark expansion between businesses of all sizes as they qualify for larger loans to expand their business. Due to the rapid expansion, the labor market will grow, which will develop the economy. Additionally, as saving account rates fall, people move money back into the share market leading to higher yields.

Given the United States’ position in the global economy, how does this affect the rest of the world? Promptly, foreign investors initiate a capital outflow from other markets as stock market returns in the US are higher. As local businesses expand, a new global demand for commodities increases international trade. Rate cuts typically weaken the US dollar making American exports more competitive, while also making imports more expensive. Because of these reasons, many foreign countries re-evaluate their rates to maintain competitiveness with the US. Unfortunately, there is a tradeoff. The lower rates can impact housing affordability as lower mortgage rates can drive a home-buying frenzy. Eventually, this could create a housing bubble where prices are sent soaring due to early increased demand.

Impact on Students
Now the big question is,” How does this really matter to me?” If you plan on going to college and studying a higher education, lower interest rates mean cheaper loans for you or your parents. This will make paying for college easier and reduce the stress of debt after graduation. Additionally, if you’re thinking about buying a new car, lower interest rates make borrowing money for these much bigger purchases, much cheaper. This for you as a student, will make a big difference in saving money. However, this may make the things you buy from stores, such as clothes, gadgets, accessories, etc., more expensive.

Conclusion
The Federal Reserve’s recent rate cut reflects its focus on stimulating economic growth and addressing rising unemployment and inflation. Given the current economic state, there is an increasing chance that this is not the only rate cut to come. While each rate cut presents unique advantages and challenges, the primary objective is to catalyze economic development and ensure a resilient future.

Steed Street is a financial newsletter for Metea Valley Students. Riaan Kaushik and Jayin Preetham Konduru are guest contributors to Metea Media.