Why Is the Federal Reserve Reducing Interest Rates? (CRS Report for Congress)
| Release Date |
Sept. 23, 2024 |
| Report Number |
IN12427 |
| Report Type |
Insight |
| Authors |
Marc Labonte |
| Source Agency |
Congressional Research Service |
Summary:
On September 18, 2024, the Federal Reserve (Fed) reduced interest rates to a target range of 4.75%-5%.
This was the first rate cut since March 2020, and the Fed expects to continue cutting rates this year and
beyond.
Why is the Fed cutting interest rates? And why did it decide to reduce rates by 0.5 percentage points (50
basis points), instead of the more standard 0.25 percentage points.
The Fed has a “dual mandate” to promote price stability and maximum employment. The Fed targets the
federal funds rate—a short-term interest rate in the interbank lending market—to balance those goals. It
reduces rates when employment or inflation is too low and raises rates when either is too high. For an
explanation of how changing interest rates affects the economy, see CRS In Focus IF11751, Introduction
to U.S. Economy: Monetary Policy.
