Having all but tamed inflation, the Federal Reserve is poised to do something Wednesday it hasn't done in more than four years: Cut its benchmark interest rate, a step that should lead to lower borrowing costs for consumers and businesses just weeks before the presidential election.
And yet an unusual air of uncertainty overhangs this week's meeting: 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," whereby it curbs inflation without causing a sharp recession. A half-point rate cut would signal that the Fed is as determined to sustain healthy economic growth as it is to conquer high inflation. This week's move is expected to be only the first in a series of Fed rate cuts that will extend into 2025.
High interest rates and elevated prices for everything from groceries to gas to rent have fanned widespread public disillusionment with the economy and provided a line of attack for former President Donald Trump's campaign. Vice President Kamala Harris, in turn, has charged that Trump's promise to slap tariffs on all imports would raise prices for consumers much further.
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.
