Federal Reserve Cuts Rates By 25 Basis Points, Signaling the Economy Is Ready to Grow

Update (12.18.24) – On Wednesday, December 18th, 2024, the Federal Reserve approved a 25 basis point cut to its key interest rate. This move marks the third consecutive rate reduction in 2024, bringing the prime rate to 7.5% from its peak of 8.5% in July of 2023.

Jerome Powell, Chair of the Federal Reserve of the United States, stated, “We think the economy is in a really good place. We think policy is in a really good place.”

While this is great news for businesses, the stock market had a different opinion.

Originally planning for 3-4 rate cuts in 2025, the Federal Reserve changed its stance to 1-2 projected rate cuts. Investors, expecting the cost of capital to fall significantly in 2025, reacted negatively to the news, which has resulted in declines in the S&P500 index.

Remember – The stock market is prone to knee-jerk reactions, and it’s never a good idea to let investor sentiment drive your business. The news is fantastic for business, as it suggests that economic conditions are improving and growth is on the horizon. It just might not happen as fast as investors had originally expected.

On Thursday, November 7th, 2024, the Federal Reserve made a strategic move by approving a 0.25% interest rate cut, marking its second consecutive reduction this year.

This decision lowers the benchmark overnight borrowing rate to a range of 4.50%-4.75%, impacting the rates lenders charge on debt products, including business loans and credit lines.

The Fed’s gradual shift in monetary policy reflects a commitment to balancing economic growth with inflation control, providing a more stable backdrop for the labor market.

Their move is much more than a simple shift in numbers. It’s a signal that the economy is ready to grow, with brighter days on the horizon. With lower borrowing costs, you’re empowered to move forward on key projects and build even greater momentum in your business. This is a time to think about the potential you’ve always envisioned – and to turn that potential into real, measurable growth.

Whether you have plans to invest in equipment, expand your team, upgrade your operations, or anything in between, we’re here to support your vision. If you have plans to capitalize on this lower rate environment, you can apply here, and one of our expert advisors will reach out to get started.

What This Interest Rate Cut Means for Your Business

The Federal Reserve uses the prime rate to control the flow of money through the economy. Rate hikes are done to slow the flow of money by making capital more expensive, while rate cuts are used to spur economic activity through a lower cost of borrowing. Now that we’ve seen two rate cuts in a row, it’s a signal that the Fed has confidence in the future of the economy.

It’s an exciting turning point in our recent economic journey. After a long period of rate hikes after the pandemic, we’re finally entering a more favorable environment for businesses.

Lower borrowing costs open the door for your company’s growth and development. Capital becomes less expensive and more accessible, which can help fund growth initiatives cash flow couldn’t otherwise support. If you’re considering financing for expansion, purchasing new equipment, managing cash flow, or anything in between, this could be an ideal time to explore options and transform your growth plan into reality.

The real impact of the rate cut, though, comes down to confidence. Economic uncertainty has plagued businesses and consumers for far too long, and now, we finally have a light at the end of the tunnel. Interest rate decisions don’t occur in isolation; they are carefully calculated adjustments based on various economic indicators. The Fed’s confidence is confirmation that brighter days are right around the corner.

What’s Next for the Prime Rate?

The general consensus is that the Fed will hold rates in December before beginning a rate cut cycle in 2025. All of this depends on the economic data, though, as the Fed remains cautious of fluctuations in the inflation rate, labor market, and other market indicators. Still, their decision to cut rates twice in 2024 means that the Fed is confident that no major fluctuations will erode the progress they’ve made.

As the prime rate falls, the cost of borrowing will continue to fall in tandem. Access to capital will become more accessible and less expensive, enabling more and more businesses to move forward with their growth plans.

Some will choose to wait for the absolute lowest cost of capital, while others will move forward with what works for their company. Historically, the companies that have moved forward with their opportunities as they come up, rather than wait on them, are the companies that find themselves on top of a booming economy.

Capitalize on the Confidence with National Business Capital

As we look ahead to the opportunities to come from this shifting economic landscape, now is the time to position your business for growth. Those with growth plans should explore their capital options sooner rather than later, and there’s no better way to do that than working with National Business Capital’s expert advisory team.

Clients work with a dedicated advisor to personalize their capital options to their unique needs. Our flexible direct lending criteria paves the way for higher approvals and unique terms, while our diverse arsenal of financing products ensures every company can find the option they need to grow and scale.

Take advantage of the economic shift before your competition does. Complete our digital application today, and an expert advisor will reach out to you shortly after.