Fed Cuts Target Interest Rate For First Time Since 2008

For the first time since the last economic recession and housing bubble burst, over a decade ago, the Federal Reserve has cut the target interest rate in a move to stimulate the economy.  The Fed lowered the rate by a quarter point, down to a range of 2%-2.25%.  The move is designed to decrease the cost of borrowing, including the cost of mortgages, in an attempt to extend the current period of economic expansion.

President Trump has criticized the Fed throughout his presidency and has called for a cut to the interest rate, whereas the Federal Reserve has increased the target interest rate eight times since President Trump took office in 2017.  As of late 2018, the Fed was expected to continue to increase the target interest rate at least twice in 2019.  Federal Reserve Chairman Jerome Powell, who has faced criticism from President Trump, has insisted that he and his colleagues do not take politics into account in deciding on rate policy, nor do they make policy decisions to demonstrate their independence.  According to an article on Reuters, however, the decision to cut the target interest rate is at least in part based on policy decisions made by the Trump administration.  Powell has also stated that the rate cut is part of a short-term strategy, rather than a long-term strategy to continue cutting the target interest rate.

Coming off the back of the Fed’s decision and announcement, the Dow Jones Industrial Average and S&P 500 both closed down more than 1% on the day.  Whether and how the Fed’s decision will impact the housing market remains to be seen, although one can expect that low interest rates will result in decreased cost of ownership and continuing increases to prices.

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