Fed rate cut is limited relief amid economic challenges

() – The Federal Reserve cut interest rates by a quarter point on Thursday, following the US presidential election held earlier this week.

It is the second rate cut since the central bank began reducing borrowing costs in September, although the latest cut is smaller. Still, it provides Americans with greater relief from the high cost of loans like credit cards, cars and mortgages.

At each alternating monetary policy meeting, Federal Reserve officials are required to present forecasts about the economic outlook for the remainder of the current year, as well as for the next three years and for the longer term.

Their forecasts are included in the Summary of Economic Projections, which is colloquially known as the “dot chart,” which represents each official’s views shown simply as a dot.

Officials last presented projections at the September meeting. This is how they think the economy will evolve, according to the median forecast:

Why isn’t the Federal Reserve cutting rates further?

As the Federal Reserve cuts rates, you would think mortgage rates would drop as well. But no, mortgage rates fell in anticipation of the Federal Reserve cutting rates, but they’ve been rising for six straight weeks, and a 30-year mortgage will now get you a rate of nearly 6.8%.

That’s because US Treasuries continue to fall. Rates on consumer loans, such as mortgages, are most closely tied to the yield on the U.S. 10-year Treasury, which has been rising steadily as bond prices fall. And yields have been rising as the U.S. economy outperforms the rest of the world, making U.S. debt more attractive, and they have risen in anticipation of President-elect Donald Trump’s re-election, because he has proposed economic policies that could increase inflation.

The Federal Reserve has said the housing market remains stagnant and is a source of persistent inflation. So why not cut rates even further to try to influence bond yields lower?

Federal Reserve Chair Jerome Powell said Thursday that the Fed is not convinced the bond market will remain weak for long. He said it could be a temporary blip due to policy decisions outside the Federal Reserve’s control.

“We take into account the financial conditions. If they are persistent and if they are material, then we will certainly take them into account in our policy. However, I would say we are not at that stage right now,” Powell said.

More than three years of high inflation have weighed heavily on Americans, their finances and their outlook on the economy.

And while that global inflation shock has certainly subsided, and the rate of price increases is close to normal, it hasn’t been a great feeling for Americans, because those price levels are not returning to where they were before.

So when will people start to feel relief?

“It takes a few years of real wage gains to make people feel better,” Powell said Thursday. “That’s what we’re trying to create. And I think we’re well on our way to creating that.”

Average hourly earnings have outpaced inflation for 17 months through September, according to data from the Bureau of Labor Statistics.

Inflation is down, the economy remains strong and wages are rising at a sustainable pace.

“But it will be some time before people regain their confidence and feel that,” he said. “And we don’t tell people how to feel about the economy. We respect, we completely respect what they are feeling. Those feelings are true; They are precise. We do not question them, we respect them.”

Asked if the Fed would consider staying below its 2% target to help people catch up, Powell said that’s not in the plans.

“That’s not the way our framework works,” he said. “We don’t think it would be appropriate to deliberately underperform…low inflation may also be an issue.”

‘s David Goldman contributed to this report.