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Monday,  November 4 , 2024

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News / Business

Fed set to cut rates again regardless of who wins Tuesday

Economists say Trump’s tariffs would raise prices

By Associated Press
Published: November 3, 2024, 2:19pm

WASHINGTON — No one knows how Tuesday’s presidential election will turn out, but the Federal Reserve’s move two days later is much easier to predict: With inflation continuing to cool, the Fed is set to cut interest rates for a second time this year.

The presidential contest might still be unresolved when the Fed ends its two-day meeting Thursday afternoon, yet that uncertainty would have no effect on its decision to further reduce its benchmark rate. The Fed’s future actions, though, will become more unsettled once a new president and Congress take office in January, particularly if Donald Trump were to win the White House again.

Trump’s proposals to impose high tariffs on all imports and launch mass deportations of unauthorized immigrants and his threat to intrude on the Fed’s normally independent rate decisions could send inflation surging, economists have said. Higher inflation would, in turn, compel the Fed to slow or stop its rate cuts.

On Thursday, the Fed’s policymakers, led by Chair Jerome Powell, are on track to cut their benchmark rate by a quarter-point, to about 4.6 percent, after having implemented a half-point reduction in September. Economists expect another quarter-point rate cut in December and possibly additional such moves next year. Over time, rate cuts tend to lower the costs of borrowing for consumers and businesses.

The Fed is reducing its rate for a different reason than it usually does: It often cuts rates to boost a sluggish economy and a weak job market by encouraging more borrowing and spending. But the economy is growing briskly, and the unemployment rate is a low 4.1 percent, the government reported Friday, even with hurricanes and a strike at Boeing having sharply depressed net job growth last month.

Instead, the central bank is lowering rates as part of what Powell has called “a recalibration” to a lower-inflation environment. When inflation spiked to a four-decade high of 9.1 percent in June 2022, the Fed proceeded to raise rates 11 times — ultimately sending its key rate to about 5.3 percent, also the highest in four decades.

But in September, year-over-year inflation dropped to 2.4 percent, barely above the Fed’s 2 percent target.

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