Having all but tamed inflation, the Federal Reserve is poised to cut its benchmark interest rate today, the Associated Press reports. It’s a step that should lead to lower borrowing costs for consumers and businesses just weeks before the presidential election.
However, it’s unclear just how large the Fed’s rate cut will be. Wall Street traders and some economists foresee a growing likelihood that the central bank will announce a larger-than-usual half-point cut. Many analysts foresee a more typical quarter-point rate cut.
With inflation barely above their target level, Fed officials have been shifting their focus toward supporting a weakening job market and achieving a rare “soft landing.” This week’s move is expected to be only the first in a series of Fed rate cuts that will extend into 2025.
Over time, Fed rate cuts should lower borrowing costs for mortgages, auto loans, and credit cards, as well as for business loans. Business spending could grow, and so could stock prices. Companies and consumers could refinance loans into lower-rate debt.
Chair Jerome Powell made clear last month in a high-profile speech in Jackson Hole, Wyoming, that Fed officials feel confident that inflation has largely been defeated. It has plummeted from a peak of 9.1% in June 2022 to 2.5% last month, not far above the Fed’s 2% target. Central bank officials fought against spiking prices by raising their key interest rate 11 times in 2022 and 2023 to a two-decade high of 5.3% to try to slow borrowing and spending, ultimately cooling the economy.
Wage growth has since slowed, oil and gas prices are falling, and consumers are pushing back against high prices, forcing companies to dangle deals and discounts. Yet after several years of strong job growth, employers have slowed hiring, and the unemployment rate has risen nearly a full percentage point from its half-century low in April 2023 to a still-low 4.2%.
