New era of easy money dawns as Fed nears first rate cut since 2020

The Federal Reserve is nearing the end of an era as the central bank seeks to cut interest rates for the first time in four years.

If the Fed eases monetary policy at its next meeting on September 18 as expected, it will officially mark the end of the most aggressive inflation-fighting campaign since the 1980s. Its benchmark rate is currently between 5.25% and 5.5%, a 23-year high.

The central bank’s new era of easy money is expected to last through 2025 and 2026. The shift will ripple across the U.S. economy by making it cheaper for Americans to borrow what they need to buy homes and cars or make credit card purchases.

Businesses will also find it easier to take out loans to finance their operations.

“We’re starting this rate cut cycle, it looks like, in September at a level where fed funds haven’t been in over 20 years,” Kevin Flanagan, head of fixed income strategy at WisdomTree, told Yahoo Finance.

“You have a whole generation of investors who have never experienced rate cuts to these levels of interest rates.”

Learn more: What the Fed’s Interest Rate Decision Means for Bank Accounts, CDs, Loans and Credit Cards

For Fed Chairman Jerome Powell, this inflection point could allow him to claim an accomplishment that has eluded many of his predecessors, including his inflation-fighting idol, Paul Volcker.

Powell said he admired Volcker, who raised interest rates to 22% in the 1980s in an attempt to control inflation. But Volcker couldn’t avert a recession because his high rates hurt millions of Americans and businesses.

Powell had his own Volcker moment in 2022, when he promised to “hurt” as the Fed set its own rate-hike campaign in motion. He then lived through a banking crisis in the spring of 2023, which tested the central bank as it struggled to quell panic among bank depositors across the United States.

But the goal now within reach is the rare “soft landing,” in which inflation falls back to the Fed’s 2 percent target without forcing the U.S. economy into a painful slowdown.

Esther George, former president of the Kansas City Fed, said the Fed is not done until it reaches its 2% inflation target.

“They may be on the golden path, but for me, [it’s] “It’s too early to say we know the path we’re on,” George said. “The Fed’s credibility around the 2% target is starting to become clearer, but we’re not there yet.”

The risk of a worsening labor market slowdown remains, which could weigh on the U.S. economy and force the Fed to cut rates more aggressively.

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It’s the debate that will likely define the days ahead as the Fed prepares for its next meeting.

Powell made this clear in his latest…