ARI SHAPIRO, HOST:
First, we turn to the economy.
JUANA SUMMERS, HOST:
For more than a year, the Federal Reserve has kept borrowing costs at their highest level in more than two decades. That's made it more expensive to get a car loan, finance a business or carry a balance on your credit card. But those sky-high interest rates are finally about to change. Fed policymakers are poised to start cutting interest rates tomorrow. The big question is how far and how fast they will go. We're going to talk through all of that with NPR chief economics correspondent Scott Horsley and finance correspondent Maria Aspan. Hi, y'all.
SCOTT HORSLEY, BYLINE: Hi.
MARIA ASPAN, BYLINE: Hey there.
SUMMERS: Scott, I want to start with you. Tell us. What are we expecting from the Fed's latest policy meeting?
HORSLEY: Well, Juana, I can say with 100% certainty the central bank is going to cut interest rates tomorrow. I know that's not exactly a stop-the-presses kind of headline. Fed chairman Jerome Powell telegraphed this more than a month ago. We also know tomorrow's rate cut probably will not be the last. We expect rates to fall further in the next few months.
This does mark a turning point, though. The Fed has been keeping rates high to tamp down demand and get control over runaway prices. And inflation has come down a lot. And what's more, so far, we've gotten that progress on inflation without falling into recession. But we're starting to see some weakness in the job market. Hiring has slowed down. Unemployment has inched up. And that's why Powell told an audience in Jackson Hole, Wyo., it's time for the central bank to start taking its foot off the brakes.
(SOUNDBITE OF ARCHIVED RECORDING)
JEROME POWELL: The upside risks to inflation have diminished, and the downside risks to employment have increased. The time has come for policy to adjust.
HORSLEY: So we know interest rates are going to start going down tomorrow. What we don't know is how much they're going to drop.
SUMMERS: Maria, how big of a cut are markets expecting?
ASPAN: Yeah. It is the world's nerdiest betting pool. Are the sober central bankers in suits going to cut interest rates by a quarter of a percentage point or by a huge half a point? It's going to be one of those, Juana. And within that pretty narrow range, speculation is running wild. Investors are split about how large a cut to expect. But as you just heard from Scott, whatever tomorrow brings, it's just not going to be a big surprise, which is the point. The Fed and Powell aren't really doing their job right if it is a big surprise. So some investors will probably be happy or disappointed tomorrow at the size of the cut. But nobody's going to be shocked.
HORSLEY: And the reason there's lingering uncertainty over the size of the rate cut is the Fed likes to say it's data-driven. And lately, the data has not been driving in a clear direction. You know, the jobs numbers were a little weak but not really weak. The inflation number was cool but not really cool. So economists and investors have been watching all these numbers, hoping they would get a clear signal that the Fed should either go big or go small. And instead, the numbers have kind of been telling us it could go either way.
SUMMERS: And, Scott, I mean, however much the Fed does cut tomorrow and in the coming months, I'd love if you could just talk through what that's going to mean for, you know, regular people and for the economy.
HORSLEY: Well, for borrowers, it's going to make things a little bit cheaper. Interest rates on car loans and credit cards should come down a little bit. On the other hand, for people with money in the bank, the interest rate they get on their savings account might also start to drop a bit. Mortgage rates have come down already in anticipation of the Fed's move. The average rate on a 30-year home loan is now 6.2%, which is way down from the peak last year of nearly 8%. It's also still high, though, compared to what it was a few years ago. So it's going to take some time for even these falling rates to make a big difference in the economy. As I've said before, monetary policy is like the hot water in my old house. It takes time to work its way through the system.
SUMMERS: Indeed. And, Maria, in the meantime, we've seen a whole lot of just volatility in markets. How much will this rate cut help investors just calm down?
ASPAN: Yeah. I mean, there is a lot of volatility. And the Fed and the economy are part of it, and the cut will certainly help that, but they're only part of it. Obviously, we're in an election year. And September is historically a bad month for the markets. In election years, so is October. And then there's the tech bubble that we've seen contributing to so much volatility recently. Tech investors are worried about the billions of dollars that companies are spending on artificial intelligence, and they're worried that AI stocks are massively overhyped. The bad news is there's just not really a quick fix for a lot of this uncertainty. I was chatting about this with Steven Wieting. He's the chief investment strategist for Citi Wealth.
STEVEN WIETING: I'm a little dubious about the rate cut reducing uncertainty. But a variety of these other things, again, will play out. And ultimately, we'll get a clearer direction.
ASPAN: So as much as we're all looking forward to tomorrow, it's not going to give us quick answers to all of our questions about the economy. For that, I'm afraid we really just have to be patient.
SUMMERS: That is NPR's Maria Aspan and Scott Horsley. Thanks to both of you.
ASPAN: Thank you.
HORSLEY: You're welcome.
(SOUNDBITE OF DONNIE TRUMPET AND THE SOCIAL EXPERIMENT SONG, "PASS THE VIBES") Transcript provided by NPR, Copyright NPR.
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