19/09/2024
In a significant shift, the US Federal Reserve has announced a 0.5 percentage point cut to its federal funds rate, a decision that could have major repercussions for the Australian economy. This move marks the first rate reduction since 2020 and ends a prolonged period of high rates, as the Fed responds to slowing economic growth and easing inflation.
Economist Stephen Koukoulas highlights that the Fed’s actions signal a broader trend, suggesting that Australia’s Reserve Bank (RBA) may also feel compelled to reduce its interest rates. The Fed’s rate is now set in a range of 4.75 to 5%, and forecasts indicate additional cuts could occur through 2025 and 2026.
Implications for Australia
The RBA has maintained a cautious approach, with Governor Michele Bullock stating that Australia’s monetary policy decisions will not be directly influenced by the Fed’s actions. She emphasised the RBA’s commitment to reducing inflation without triggering a recession, a delicate balance that has guided their policy.
While Australia’s current inflation rate of 3.8%, although decreasing, still exceeds the RBA’s target of 2-3 percent, Bullock asserts that rate cuts will only follow once inflation stabilises within this range. However, the Fed’s decision is expected to affect the Australian dollar, potentially providing more support to the currency as global rates adjust.
In this shifting economic landscape, we, at FINSTREET.AU are committed to support and advice to navigate the complexities of interest rate changes, helping partners make informed decisions regarding mortgages and refinancing options.
With the potential for lower rates on the horizon, Finstreet.au can assist clients in evaluating their financial strategies, ensuring they are well-positioned to respond to the evolving economic environment. Our expertise will help to understand how these developments may affect financial health and long-term goals.
