The Federal Reserve’s Bold Interest Rate Cut Aligns with the Florida Chamber Foundation’s 2024 Economic Forecast – a Welcomed Decision for Florida’s Economy

By: Keith Richard, Ph.D., Vice President of Research, Florida Chamber Foundation

On Tuesday, the Federal Reserve announced a 0.50 percentage point interest rate cut, its first reduction since March 2020. This cut aligns with the Florida Chamber Foundation’s 2024 economic forecast, which projected a rate cut in the second half of 2024. This larger-than-expected cut, surpassing the 0.25 percentage point drop forecasted by many economists, reflects the Fed’s determination to prevent the U.S. economy from slowing down amid rising concerns over a softening job market. The cut is expected to lead to lower borrowing costs for both businesses and consumers, affecting areas such as car and home loans, business financing, and credit card balances.

The Fed’s substantial rate cut indicates confidence that inflation is approaching the target of 2%. Economists have been monitoring the steady decline in inflation over the past several months, with the national rate falling to 2.5% from its peak of 9.1% in June 2022. In the southern region, which includes Florida, inflation has similarly dropped to 2.3% from 9.8% (for historical trends, see the “Business Climate & Competitiveness” tab on the TheFloridaScorecard.org). Alongside inflation, economists have been closely watching the national job market, and the rate cut is expected to reduce business costs, allowing companies to grow and sustain employment more easily. Given the Fed’s bold action, there is growing speculation among economists that another half-point cut could occur at the next Federal Open Market Committee meeting later this year.

In Florida, record-high housing prices have persisted (the current median single-family sales price is approximately $417k), but the Fed’s significant interest rate cut could make it easier for new homebuyers to afford homes if home mortgage rates decrease as a result. While the Fed’s rate cut isn’t the sole factor influencing mortgage rates, it contributes to lower borrowing costs. That said, not all consumers will see immediate relief, as most current homeowners have fixed-rate mortgages that won’t be affected unless they refinance, whereas new buyers will benefit from lower rates. The Fed’s rate cut will also likely cause interest rates on savings account and CD to dip slightly, which will impact Floridians who have been relying on the high yields in recent years as a means of passive income. Florida businesses, on the other hand, could find new opportunities for growth, as it will become more affordable to leverage banking institutions for financial resources for expansion. This can fuel growth in the labor market, a promising trend as Florida needs to create 1.39 million more jobs by 2030 to accommodate our growing population, as outlined in The Florida 2030 Blueprint. Overall, the Fed’s action signals a positive outlook for inflation, suggesting we are moving closer to the target 2% inflation rate, which is a welcomed development for all Floridians.