By Tilly Armstrong Assistant Consumer Editor for Dailymail.Com
Published: | Updated:
The Federal Reserve is cutting interest rates on Wednesday for the first time since 2020.
In exceptional cases, it is still uncertain how large the cut will be that the central bank will implement.
The Fed’s decision will be announced at 2 p.m. Eastern Time, followed by a press conference by Chairman Jerome Powell.
By lowering interest rates, the Fed makes borrowing money cheaper, reducing the pressure on consumers’ wallets.
Investors are uncertain about the outcome
Fed observers do not yet know how big the rate cut the central bank will make at the end of its latest meeting on Wednesday.
Normally, markets have a general idea of what will happen at the meeting, but that is not the case this time.
“I hope they cut 50 basis points, but I suspect they’ll cut 25. I’m hoping for 50 because I think interest rates are just too high,” said Mark Zandi, chief economist at Moody’s Analytics. CNBC.
“They’ve achieved their mandate for full employment and inflation back to target, and that’s not consistent with a five-and-a-half percent interest rate target. So I think they need to normalize interest rates quickly and they need to have a lot of room to do that.”
There is reportedly an unusual division among Fed policymakers, who typically vote similarly when deciding on interest rates.
“I think they’re divided,” former Dallas Fed President Robert Kaplan told the newspaper earlier this week.
“There will be people at the table who, like me, feel like they’re a little late. They’re eager to get ahead and don’t want to spend the fall chasing the economy.”
There will be others, he added, who will want to be more cautious and manage risks.
How much will the Fed cut rates?
Investors are anxiously awaiting whether the Fed will cut rates by a cautious quarter of a percentage point or a bold half of a percentage point. The Fed has not done that in 16 years.
The Fed has not cut borrowing costs this much since the start of the financial crisis in late 2008.
At the time of writing, investors were predicting a 57 percent chance of a 50 basis point rate cut and a 43 percent chance of a 25 basis point rate cut, according to the CME FedWatch Tool.
Every rate cut, no matter how large, has consequences for Americans’ finances — from credit cards and savings accounts to 401(k) accounts and mortgages.
The Fed has kept benchmark borrowing costs at a 23-year high of 5.25 percent to 5.5 percent since July 2023 after aggressively raising rates to curb inflation.
Share or comment on this article: The Fed Could Do Something Today It Hasn’t Done in 16 Years — Here’s What It Means for Your 401(k), Loans, Credit Cards, and Mortgage
