PROVIDENCE – Most major banks have reduced their prime lending rates by a quarter-point recently to match the Federal Reserve’s decision to cut its key interest rate on Nov. 7.
The Fed’s move was in response to the steady decline in the once-high inflation that had angered Americans and helped drive Donald Trump’s presidential election victory. The rate cut follows a larger half-point reduction in September, and it reflects the Fed’s renewed focus on supporting the job market, as well as fighting inflation, which now barely exceeds the central bank’s 2% target.
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Following the Fed’s decision, banks with some of the largest deposit market share in Rhode Island such as Bank of America Corp., Citizens Financial Group Inc., Santander Bank and Webster Bank, reduced their prime lending rate from 8% to 7.75%
The prime lending rate is a base interest rate that banks use to set rates for different types of loans, credit cards and lines of credit.
The Fed rate cut on Nov. 7 reduced its benchmark rate to about 4.6%, down from a four-decade high of 5.3%. The Fed had kept its rate that high for more than a year to fight the worst inflation streak in four decades. Annual inflation has since fallen from a 9.1% peak in mid-2022 to a 3 1/2-year low of 2.4% in September.
When its latest policy meeting ended on Nov. 7, the Fed issued a statement noting that the “unemployment rate has moved up but remains low,” and while inflation has fallen closer to the 2% target level, it “remains somewhat elevated.”
After their rate cut in September – their first such move in more than four years – the policymakers had projected that they would make further quarter-point cuts in November and December and four more next year. But with the economy now mostly solid and Wall Street anticipating faster growth, larger budget deficits and higher inflation under a Trump presidency, further rate cuts may have become less likely. Rate cuts by the Fed typically lead over time to lower borrowing costs for consumers and businesses.
Federal Reserve Chair Jerome Powell on Nov. 7 declined to be pinned down on whether the Fed would proceed with an additional quarter-point rate cut in December or the four rate cuts its policymakers penciled in for 2025.
With reports from The Associated Press.
