The one question on everyone’s mind about interest rates

After a grueling two years of high inflation and elevated interest rates, Americans are finally set for some relief: Federal Reserve Chair Jerome Powell on Friday offered his strongest affirmation yet that a rate cut is coming next month. But the size of that relief remains an open question.

After a grueling two years of high inflation and elevated interest rates, Americans are finally set for some relief: Federal Reserve Chair Jerome Powell on Friday offered his strongest affirmation yet that a rate cut is coming next month. But the size of that relief remains an open question. Once the Fed begins to pare back its key interest rate, which influences borrowing costs across the economy, that will mark an important milestone in the central bank’s historic inflation fight. Price pressures are coming under control and America’s job market is running at a slower pace these days than in recent years. Data from the Labor Department released this week showed that job growth was much weaker in the 12 months that ended in March than previously reported. Unemployment also rose in July to its highest level since October 2021. That’s precisely why the Fed is poised to cut interest rates in September for the first time since 2020. In addition to stabilizing prices, the Fed is also tasked by Congress to strive for maximum employment. While the US labor market remains healthy, economists aren’t sure if unemployment will hold steady or continue to climb. Several Fed officials even considered the possibility of cutting interest rates at last month’s policy meeting, minutes released Wednesday showed, but instead opted to keep rates unchanged. A “vast majority” of them said they think it would be appropriate to roll out the first rate cut in September, if the economy evolves as expected. As central bankers and prominent economists gather this week in Jackson Hole, Wyoming, for an annual symposium hosted by the Kansas City Fed, Powell delivered a strong signal to markets in his keynote speech Friday that the first rate cut is coming in about a month. Wall Street has been antsy for the Fed to lower borrowing costs for a while now. Traders are currently seeing a strong chance of a jumbo, half-point rate cut in November, according to the futures market, after the Fed cuts in September for the first time.