Americans are doing better with the economy after the Fed's massive interest rate cut

Washington
CNN
—

Americans' attitudes toward the economy improved this month thanks to lower interest rates.

The University of Michigan's latest consumer survey, released Friday, showed sentiment rose for the third straight month in October, reaching its highest level since April. Americans' expectations for long-term inflation rates also fell slightly this month.

“This month's increase was primarily due to slight improvements in purchasing conditions for durable goods, partly due to easing interest rates,” Joanne Hsu, director of consumer surveys at the university, said in a news release.

The Federal Reserve last month cut interest rates by a hefty half percentage point for the first time in more than four years, in part because inflation is under control. Lower borrowing costs are making it cheaper for American buyers to purchase durable goods such as appliances, cars and furniture that are typically purchased on credit.

But sentiment isn't always a good indicator of actual spending behavior. The government's latest retail spending report, released last week, showed that durable goods sales fell in September, and a separate report released Friday showed that new orders for durable goods at U.S. Factories fell 0.8% in September, following another decline the previous month.

Still, the Fed has made it clear that it plans to cut rates further if the economy performs as expected, so this could be reassuring enough for U.S. consumers.

“While loan rates have not yet begun to decline, consumers know that this should coincide with the Fed's rate cuts,” said Robert Frick, corporate economist at Navy Federal Credit Union, in a note Friday. “In addition to already rising spending, lower interest rates and rising consumer sentiment could be the backbone of a seventh-inning economic recovery.”

The University of Michigan report also showed that sentiment among Republicans rose sharply later this month amid increasing bets that former President Donald Trump will win the upcoming presidential election, while sentiment among Democrats deteriorated somewhat.