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It is the first interest rate cut in four years. Outside of the
emergency rate reductions during the pandemic, the last time the
Federal Open Market Committee cut by half a point was in 2008
during the global financial crisis.
“We’re trying to achieve a situation where we restore price
stability without the kind of painful increase in unemployment
that has come sometimes with this inflation,” said Fed chair
Jerome Powell.
Justin Theal, state fiscal health officer with Pew Charitable
Trusts, said one of the most immediate impacts of lower rates
will be lower borrowing costs for state and local governments
seeking to finance projects.
“A lot of the benefits will be experienced gradually over time
in the areas of borrowing and revenue and spending, in
particular,” said Theal.
In addition to making new borrowing more affordable, Theal said
lower rates could prompt states like Illinois to refinance
older, higher-interest bonds to free up fiscal bandwidth for
other priorities.
Theal adds that there are some drawbacks on state budgets from a
reduction in interest rates.
“I think it is important to note that this shift doesn't without
trade-offs,” said Theal. “Reduced interest income from state’s
financial reserves is one trade-off.”
Illinois generated $558 million in interest income during the
last fiscal year, an over 50% increase from the year before.
There is just over $2 billion in Illinois’ budget stabilization
fund, or “rainy day” fund. It is the highest it's been in
decades, but still one of the lowest amounts in the country.
Illinois’s latest budget is the largest spending plan ever by
the state. Democratic lawmakers approved more than $1.1 billion
in revenue increases, including a tax hike on sportsbooks and
businesses, to balance the $53.1 billion spending plan for
fiscal year 2025.
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