Economy Newsletters: Unpacking Why Recent Interest-Rate Cuts Aren't Helping Consumers

Understanding the Current Economic Landscape

Good morning. Milton has strengthened into a Category 5 hurricane, causing gas stations across Florida to run out of fuel as millions try to flee.

In today's big story, we discuss the recent interest-rate cut by the Federal Reserve and the mixed feelings consumers have about it. Last month's decisions were expected to initiate a welcome change, bringing lower borrowing costs after two years of inflation struggles. However, consumers feel stuck as that promised relief is predominantly absent.

The Discrepancy Between Rate Cuts and Borrowing Costs

So why haven’t rates improved as expected? Even with the interest-rate cut, borrowing costs remain high. In fact, since the Fed's cut, the average 30-year fixed mortgage rate has risen by 47 basis points. The critical factor here is the 10-year Treasury yield. It has shot above 4% for the first time since August, representing a crucial benchmark for lenders.

Understanding the Fed Rate vs. Treasury Yields

What does this mean for consumers? It implies that the Fed's short-term rate reductions do not always translate into immediate benefits for long-term borrowing. The divergence of these rates illuminates a more complex relationship between Fed policy and consumer costs.

The Outlook for the Economy

Despite these challenges, a recent stellar jobs report suggests that investors maintain an optimistic view of the economic future. Therefore, while the economy may avoid a recession, it also indicates we shouldn't count on the many rate cuts that some analysts were banking on. A soft landing is unlikely as well.