UNITED STATES—The Federal Reserve is lowering interest rates for the first time in over a decade. The Chairman of the Federal Reserve Board, Jerome Powell announced on Wednesday, July 31, that the target for the federal funds rate has been lowered by a quarter of a percent which will decrease the cost of borrowing for loans, mortgages, and credit cards.
The Federal Funds Rate was reduced for the interest that banks charge for short term loans. The rate dropped from 2.5 percent to 2.25 percent.
In a press release from the Board of Governors of the Federal Reserve System, the rate decrease was attributed to the favorable outlook of the U.S. economy, the increased job rate, and the unemployment rate sitting at an all-time low. Powell stated that while household spending has increased, inflation still remains below two percent.
In addition to the rate reduction, the committee will continue the reduction of the aggregate securities holdings in the System Open Market account in August which is sooner than previously noted.
The Federal Reserve buys and sells government securities to control the money supply which is known as open market operations. The Federal Open Market Committee (FOMC) sets monetary policy in the United States.
To increase the money supply, the Federal Reserve will purchase bonds from banks to inject money into the banking system.