As expected, the FED has made its first interest rate cut since 2020, reducing rates by 0.50%. This decision lowers the federal funds rate to a range of 4.75%-5%. The cut is aimed at supporting the U.S. economy, particularly in light of a cooling labor market and reduced inflationary pressures.

Cutting interest rates typically, has several effects on the economy, here are some:

a) Increased Borrowing and Spending: Lower rates reduce the cost of loans, encouraging businesses and consumers to borrow more and spend.
b) Boost to Investment: Cheaper borrowing promotes investments in businesses, housing, and infrastructure.
c) Weaker Currency: Reduced rates may weaken the dollar, helping exports by making U.S. goods cheaper abroad.
d) Inflationary Pressure: If demand grows too quickly, inflation could rise, although it remains a concern for long-term stability.

Businesses are affected by interest rate cuts in several ways:
a) Lower Borrowing Costs: Businesses can secure cheaper loans, helping with expansion, new projects, or operational costs.
b) Increased Consumer Spending: As consumers have more access to credit and lower debt costs, demand for products and services often rises, benefiting businesses.
c) Higher Investment: Companies are more likely to invest in capital improvements, R&D, and hiring due to the favorable financing environment.
d) Pressure on Margins: While consumer spending may rise, inflationary risks could increase costs, potentially squeezing profit margins.

The impact of lower borrowing rates typically begins soon after the Federal Reserve announces an interest rate cut, but the exact timing depends on how quickly banks adjust their rates. Generally, businesses and consumers might start to see lower loan and mortgage rates within weeks. However, the full effect can take several months to ripple through the economy, as financial institutions adjust their offerings and businesses respond by increasing investment or expansion.

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economy, interestrate

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Felipe Jánica
During his 30+year career, of which 19+ have been @ EY and 8 @ Pwc, Felipe has developed strategic solutions aimed at CEOs and CFOs. He has led the market strategy in Colombia, and Latin American (LATAM) countries and has been recognized as a regional winner for developing outstanding leaders and teams (2015). Felipe authentically projects confidence by leading the implementation of crucial regulations in financial matters in Colombia such as Law 1314 of 2009 by which (IFRS) were implemented in Colombia and across LATAM Countries, a preponderant change in the economic development of the Latin American Countries and the attraction of direct foreign investment and thereby facilitate the inorganic growth of companies. Felipe has been leading: the IFRS desk, the Financial Accounting Advisory Services (FAAS) practice, the Market Segment in Colombia, the LATAM FAAS practice, The LATAM North Assurance Financial Services, the Assurance Deputy for LATAM North and then the Assurance Regional Managing partner LAN. He has managed to increase his communication by chairing the Ad-Honorem Accounting and Financial Technical Committee and being an active member in support of the Financial Regulation Unit of the Ministry of Finance of Colombia. He has been a keynote speaker at important conferences on financial matters. He has presented award-winning papers and case studies at the United Nations, in particular the one related to the SDG and how Organizations can achieve sustainable financial results thru ESG. He is a columnist for several economic newspapers and the author of the books “announced in my column”, The differences between IFRS, USGAAP, and COLGAAP, and the Explained International Public Sector Accounting Standards IPSAS. He has also published SCOPUS scientific articles on economic performance. Felipe is a visiting professor at an international business school in Europe and LATAM. Felipe has focused his career on developing and promoting solutions for C-Suite and executive so that they can be strategic in their organizations. His network of relationships has been built as a result of his professional performance and personal growth. Felipe lives his purpose by staying connected to academia where he exchanges ideas and gathers up-to-date knowledge to make it available to the firm and our clients to build a better business world. His purpose is to transcend positively to high-performance professionals within the Organizations, for them to transform and transcend positively into the economy and the society with the clear conviction to honor God´s principles.
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