The Fed’s November 2024 rate cut: What you need to know

Jamie Viceconte, Head of Investment Product | Citizens Wealth Management

_{Jamie joined Citizens Wealth Management in 2022 and is responsible for the curation and management of the investment product suite of ETFs and Mutual Funds, and portfolio models constructed with these products. As a strategic partner, he has over 30 years of experience in financial markets focused on a broad array of public and private equity and fixed income products.}

After several years of hiking interest rates to combat inflation, the Federal Reserve made two interest rate cuts in 2024 to help bolster economic growth. The first cut came in September, with another rate reduction following in November. Here's what these cuts may mean for the economy, businesses and your portfolio.

The Fed's November rate cut

On November 7, 2024, the Federal Reserve cut rates an additional 0.25%. This follows a more substantial cut in September of 0.5%. These cuts come after the Fed started raising rates in 2022 to help bring down inflation, which was squeezing consumers and businesses.

With the November announcement, Federal Reserve Chair Jerome Powell and the broader committee reiterated much of their September message.

“The narrative from Chair Jerome Powell and the broader committee is that the economy has moved to a point where risks are fairly balanced,” shares Michael Hans, Citizens Private Wealth Chief Investment Officer. “There is confidence that inflation is moving to their target level of 2% and the labor market is normalizing.”

“Today’s actions are in line with our expectations and attention will shift towards incoming economic data and the likelihood and timing of policies from the new administration that will have implications for the economy,” continued Hans. “At this point, there is reasonable momentum coming off a strong third quarter where the U.S. economy grew at 2.8%, alleviating concerns that emerged during the summer of an impending slowdown.”

Powell confirmed that the results of the 2024 presidential election will have “no effect” on their decision-making in the near-term. The Fed will continue to focus on incoming economic data but will also have to take into account any new policies from the new administration that have implications for the economy.

The current state of the economy and markets

Although the Fed will often cut rates to stimulate the economy, the U.S. economy is currently strong. Recent government reports demonstrate rising economic growth, slowing inflation and stronger employer hiring.

The stock market, led by the Standard & Poor's 500 Index, continues to hit record highs. Investors have remained bullish because of strong economic trends and, to a lesser extent, confidence that future rate cuts will spur further economic gains. 

Lower interest rates can lead to lower borrowing costs which could translate into consumers and corporations spending and borrowing more. These actions may fuel corporate earnings and additional stock market growth.

What future rate cuts may mean for investors and businesses

At the time of the September announcement, the Fed initially indicated it expected to make an additional half-point rate cut by the end of 2024, with the potential for further cuts in 2025. Expectations have been tempered and it remains to be seen if the Fed will take further action for the balance of the year beyond November’s quarter-point cut.

Federal Reserve Chairman Jerome Powell stressed in his November announcement that the Fed is not on a preset course with interest rate decisions. Future policy will depend on analyzing data from several sources, including employment and inflation reports, to determine how the economy is progressing.

While investors should never count on falling interest rates to make portfolio allocation decisions, it’s worth reexamining your plan to ensure you have the right mix of investments based on the current environment and your long-term financial goals. 

For business owners, if the cost of borrowing falls they may consider opportunities to expand through loans or to refinance existing debt. Businesses may enjoy rising sales as consumers feel more confident and spend more on goods and services.

Moving forward in a new environment

Given the changing economic landscape, those ready to take advantage have interesting opportunities across asset classes.

If you haven't reviewed your portfolio for the near future, now is an ideal time to consider your plans for this new-rate environment. Contact a Citizens Wealth Advisor today for personalized advice* on how you should handle the recent Fed rate cut and plan for the road ahead.