Federal Reserve is edging closer to cutting rates. The question will soon be, how fast?

WASHINGTON (AP) — Two years after launching an aggressive fight against inflation and one year after leaving its benchmark interest rate at a near-quarter-century high, the Federal Reserve is expected to signal this week that it will likely reduce borrowing costs as soon as September.

A rate reduction this fall — the first since the pandemic — would amount to a momentous shift and a potential boost to the economy. Fed rate cuts, over time, typically lower borrowing costs for such things as mortgages, auto loans and credit cards.

A single cut in the Fed’s key rate, now at roughly 5.3%, wouldn’t by itself make much difference to the economy. Financial markets widely expect it. Some borrowing costs have already dropped slightly in anticipation of the move. As a result, the main question for the central bank will be: How fast and how far will the policymakers ultimately cut rates?

It’s a question of keen interest to both major presidential candidates, too. Any signal that the Fed will rapidly cut rates could boost the economy and potentially lift Vice President Kamala Harris’ election prospects. Former President Donald Trump has argued that the Fed shouldn’t cut rates until its next meeting, in November, which will come two days after the election.

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