A message from Keith Sultemeier, President and Chief Executive Officer

Published September 26, 2024

Starting in the spring of 2022, the Fed began raising interest rates to a level not seen in nearly two decades as it worked to curb inflation. While many Americans felt the impacts of inflation on their everyday expenses, the rising interest rates also made financing everything from a home or car to purchases on your credit cards more expensive.

Recently, the Fed began the process of lowering rates in response to a cooling in both inflation and the labor market. I’d like to share more about this process and how it may impact consumers in the months ahead.

Adjusting the federal funds rate is a critical tool the Fed uses to influence economic activity as part of its mandate of keeping both inflation and unemployment low. By making it more expensive to borrow money, the central bank is able to curb demand for goods and services thus easing upward pressure on price growth.

Expensive rates, however, can cause businesses and consumers to pull back on big-ticket purchases, as well as hiring. The Fed’s aim with rate cuts is to stimulate the economy and employment in order to prevent an economic recession while not reigniting inflation.

Because the interest rates set by the Fed are benchmarks that dictate borrowing costs for much of the economy, you may start to see the impacts of these cuts in a few key ways.

Lowering rates typically makes borrowing cheaper, which can encourage both consumer spending and business investment. This translates to lower interest rates on mortgages, car loans and credit cards, making it more affordable to borrow and spend. It also could encourage business expansion and new hiring, buoying the labor market. Investors often view rate cuts as positive, as they can provide a boost to financial markets as the outlook for economic growth and corporate profitability improves.

As you can probably tell, balancing the risks of an economic recession with inflation can be a daunting task, even with the Fed’s deep expertise. How the economy unfolds in the coming months is unclear, but the trip down will likely be much slower than the rate hikes preceding it.

Thank you for being a valuable member of Kinecta.

Keith Sultemeier
President and Chief Executive Officer
Kinecta Federal Credit Union