Federal Reserve expected to cut interest rates for first time since 2020
(NEW YORK) — The Federal Reserve is set to make a pivotal decision about its benchmark interest rate on Wednesday that could dial back its years-long fight against inflation.
Investors widely expect the Fed to cut interest rates for the first time since 2020, delivering long-sought relief for consumers saddled by high borrowing costs for everything from credit cards to mortgages.
“The time has come for policy to adjust,” Fed Chair Jerome Powell said last month at an annual gathering in Jackson Hole, Wyoming. “The direction of travel is clear.”
Inflation has slowed dramatically from a peak of about 9% in 2022, though it remains slightly higher than the Fed’s target of 2%.
Meanwhile, the job market has cooled. A weaker-than-expected jobs report in each of the last two months has stoked concern among some economists.
In theory, lower interest rates help stimulate economic activity and boost employment; higher interest rates slow economic performance and ease inflation.
“We will do everything we can to support a strong labor market as we make further progress toward price stability,” Powell said last month.
The chances of an interest rate cut at the Fed’s meeting on Wednesday are all but certain, according to the CME FedWatch Tool, a measure of market sentiment.
Market observers are divided over whether the Fed will impose its typical cut of a quarter of a percentage point, or opt for a larger half-point cut. The tool estimates the probability of a half-point cut at 65% and the odds of a quarter-point cut at 35%.
A half-point cut risks overstimulating the economy and rekindling elevated inflation, while a quarter-point cut threatens to delay the type of economic jumpstart that may be required to avert a recession, Seema Shah, chief global strategist at Principal Asset Management, told ABC News in a statement.
“Rarely have market expectations been so torn” on the eve of a rate decision, Shah added.
Regardless of the size of the rate cut, borrowers should not expect immediate relief, Elizabeth Renter, senior economist at NerdWallet, told ABC News in a statement.
“This initial rate cut will have little immediate impact,” Renter said. “I anticipate many consumers and business owners will take the beginning of this change in monetary policy as a sign of hope.”
The expected rate cut on Wednesday would go into effect less than 50 days before the November election.
The Fed says it bases its decisions on economic conditions and operates as an independent government body.
When asked about the 2024 election at a press conference in Washington, D.C., in December, Powell said, “We don’t think about politics.”
(NEW YORK) — The debate between Vice President Kamala Harris and former President Donald Trump on Tuesday opened with a fiery exchange about the economy, an issue that often ranks as the top priority for voters.
The two candidates exchanged sharp barbs over the nation’s recent bout of inflation, Trump’s plan for an escalation of tariffs, and the economic proposals put forward by Harris.
Economists who spoke to ABC News offered an assessment of the attacks leveled by the two candidates, fact-checking major claims and providing context for a full evaluation of their implications.
Here’s what to know about what economists thought of key claims made during the debate:
Harris: “My opponent has a plan that I call the Trump sales tax, which would be a 20% tax on everyday goods that you rely on to get through the month.”
Harris deploys the phrase “Trump sales tax” in reference to Trump’s plan for additional tariffs in a potential second term.
Trump told Fox Business last year that a tax on all imported goods could land at 10%. In April, he proposed a higher tariff of at least 60% on Chinese goods.
Economists who spoke to ABC News confirmed that tariffs are widely thought to raise prices for consumers in the importing country. That’s because foreign producers typically pass along some or all of the tax burden to consumers in the form of higher prices, they said.
“This is generally accepted in economics,” said Stephan Weiler, a professor of economics at Colorado State University and a former Fed research officer.
Economists couldn’t verify the estimate put forward by Harris of a 20% increase on the prices of goods, in part because it’s difficult to predict exactly how foreign manufacturers might respond to tariffs.
In theory, foreign producers that control a given market could offset higher taxes by pushing the costs onto consumers with price increases, Yeva Nersisyan, a professor of economics at Franklin & Marshall College, told ABC News. However, Nersisyan added, companies in competitive industries may face more difficulty doing so.
“It’s hard to say whether that 20% number is accurate,” Nersisyan said.
Trump: “We have inflation like very few people have ever seen before. Probably the worst in our nation’s history.”
Economists who spoke to ABC News rejected the assertion that the nation’s bout of inflation marks its worst ever, noting that the U.S. endured higher price increases as recently as the 1980s.
In addition, economists said Trump overstated the extent to which the Biden administration caused the rapid rise in prices, though they acknowledged that a stimulus measure enacted by Biden may have contributed to some of the inflation.
Like many economic problems, inflation emerged due to an imbalance between supply and demand, economists said.
Hundreds of millions of people across the globe who endured pandemic-era lockdowns replaced restaurant expenditures with online orders of couches and exercise bikes. But the demand for goods and labor far outpaced supply, as COVID-19-related bottlenecks slowed delivery times and infection fears kept production workers on the sidelines.
“The number-one cause of the inflation was a supply adjustment to the COVID shock, particularly coming out of isolation,” Jeffrey Frankel, an economist at Harvard University, told ABC News.
Pandemic-era spending measures enacted by Trump and Biden may also have contributed to the price spike, economists said.
Jason Furman, a professor at Harvard University and former economic adviser to President Barack Obama, estimated that Biden’s American Rescue Plan added between 1 and 4 percentage points to the inflation rate in 2021, Roll Call reported. Michael Strain, of the conservative-leaning American Enterprise Institute, estimated that the legislation added 3 percentage points to inflation.
“One could argue that the COVID-related policies helped heat and possibly overheat the economy,” Weiler said.
Harris: “Donald Trump left us the worst unemployment since the Great Depression … what we have done is clean up Donald Trump’s mess.”
The economy had already emerged from the pandemic-induced recession and begun to recover by the time Biden took office, economists said.
However, the U.S. remained well below pre-pandemic levels in some key measures of economic health, including employment. In turn, economists said, Biden inherited an economy in need of significant rejuvenation.
The unemployment rate peaked at 14.8% in April 2020 when Trump was in office – which was indeed the highest level since the Great Depression, according to the Bureau of Labor Statistics. But unemployment rapidly declined to 6.4% in January 2021 by the time Trump left office, as the economy started to rebalance.
The effort to blame Trump for the spike in unemployment is misleading, since it resulted from a once-in-a-century pandemic, economists said.
“COVID is the tidal wave that overwhelmed the whole story,” Weiler said. “The politics of this is hyperbole.”
The COVID-induced recession lasted two months in the spring of 2020, the shortest U.S. recession ever recorded, according to the National Bureau of Economic Research, a non-profit organization that serves as the recognized authority on economic downturns. The speedy recovery was owed in part to trillions in economic stimulus enacted by Trump that March.
“It was very quick and very, very big,” Nersisyan said.
Still, the economy suffered a dearth of jobs and persistent supply blockages when Biden took office, economists said. Over the course of the Biden administration, the labor market expanded at a rapid pace while economic growth quickened. By 2022, the economy had recovered all of the jobs that were lost during the pandemic.
“The recovery from the recession had already begun when Biden took office, but it hadn’t gotten that far,” Frankel said.
Trump: “She doesn’t have a plan. She copied Biden’s plan. And it’s, like, four sentences, like, run-Spot-run. Four sentences that are just, oh, we’ll try and lower taxes.”
Trump sharply criticized Harris for a perceived lack of detailed economic proposals.
Some economists who spoke to ABC News agreed that there was an absence of a complete economic plans from Harris. However, they added, Trump has also failed to provide a detailed set of policy proposals on economic issues.
“I would like to see more detailed policy proposals from both candidates,” Anne Villamil, a professor of economics at the University of Iowa, told ABC News.
“For Harris, I would like to know how her policies would differ from current policies,” Villamil added. “For Trump, I would like to know how his policies would differ from the policies of his previous administration.”
Last month, Harris unveiled economic plans intended to ease inflation, fix the housing market, and slash taxes for middle-income families. The plans include eye-catching proposals such as a $25,000 subsidy for first-time homebuyers and a ban on grocery price gouging, the latter of which had not been put forward by Biden.
Harris has also proposed a 28% tax on long-term capital gains, which clocks in well below the 39.6% tax rate for such income put forward by Biden.
Trump has said he would renew his signature tax-cut measure, which eased taxes for individuals and corporations, while vowing to do away with taxes on tips and Social Security benefits.
“Trump is not one who has a lot of detailed policies himself,” Nersisyan said. “This is not a policy election.”
(NEW YORK) — As fast food chains continue to drop prices on popular menu items in hopes of enticing hungry customers, Popeyes is entering the arena with a new $5 deal.
The popular fried chicken chain announced new value offers on Monday, which includes an order of three pieces of its signature bone-in chicken for just $5.
The fast food franchise, which first started in New Orleans in 1972, timed the news in tandem with National Chicken Month.
“We first saw the ‘Value Wars’ taking off early in the summer, as consumers were looking for ways to indulge in their favorite foods, without the high price tag,” the company wrote in a blog post Monday. “This made our team think, how can we continue to serve our food, without compromising on the quality we are known for, but at a price our customers will be happy with?”
“This new promotion celebrates what Popeyes does best — Fried Chicken,” the company continued. “Each piece is expertly marinated in Popeyes signature blend of savory Louisiana herbs and seasonings, then battered in a crunchy southern coating and fried to golden brown perfection.”
According to Popeyes, the $5 deal is available at participating locations nationwide in restaurant, through the Popeyes app, or online.
“As consumers look for more ways to enjoy their favorite meals without breaking the bank, Popeyes is excited to join this conversation centered around guest satisfaction,” the company wrote.
The news comes on the heels of McDonald’s extending its $5 value meal and similar offers from competitors like Wendy’s, Burger King and even Chili’s.
(NEW YORK) — Two major Canadian freight rail companies locked out thousands of workers on Thursday, shutting down cross-border shipping routes and risking serious damage for the U.S. economy, industry experts told ABC News.
The rail lines carry everything from chemical inputs to auto parts, holding the potential to cause shortages for a range of products American consumers and businesses depend on. While the damage is minimal so far, a prolonged shutdown of weeks or months could slow U.S. economic growth, rekindle inflation and put some workers out of a job, the experts said.
“Right now, I do not think the sky is falling,” Joseph Schofer, a professor emeritus of civil and environmental engineering at Northwestern University, told ABC News. “In a week or two, effects will begin to develop.”
The shutdown will cost the Canadian economy about $250 million per day, according to Brendan La Cerdaa, director of economic research at Moody’s Analytics. If the strike continues for a week or two, the U.S. economy could start suffering costs of about $70 million per day, La Cerda said.
More than 9,000 Teamsters workers are off their jobs after Canadian National Railway Co. (CN) and Canadian Pacific Kansas City Ltd. (CPKC) locked them out when they failed to reach a deal on a new contract. It’s the first time both railways have been simultaneously halted.
“Throughout this process, CN and CPKC have shown themselves willing to compromise rail safety and tear families apart to earn an extra buck. The railroads don’t care about farmers, small businesses, supply chains, or their own employees. Their sole focus is boosting their bottom line, even if it means jeopardizing the entire economy,” Teamsters Canada Rail Conference President Paul Boucher said in a statement on Thursday.
In a statement, CN said it had negotiated with workers in good faith for nine months, offering better wages and shorter hours.
“Without an agreement or binding arbitration, CN had no choice but to finalize a safe and orderly shutdown and proceed with a lockout,” the company said on Thursday.
Similarly, CPKC said the lockout came about after months of unsuccessful negotiations.
“We fully understand and appreciate what this work stoppage means for Canadians and our economy. CPKC is acting to protect Canada’s supply chains, and all stakeholders, from further uncertainty and the more widespread disruption that would be created should this dispute drag out further resulting in a potential work stoppage occurring during the fall peak shipping period,” the statement said.
What does the Canadian rail shutdown mean for the U.S. economy?
A brief shutdown of the top two Canadian freight rail companies would not meaningfully impact the U.S. economy, experts told ABC News. However, they added, a prolonged lockout would damage the nation’s economic performance and risk accelerating inflation.
Many companies rely on Canadian rail lines to deliver raw goods that play a vital role in the supply chain. Affected industries include auto companies, chipmakers and fertilizer manufacturers, experts said. Perishable goods also reach U.S. consumers on trains from Canada.
As a smaller-scale version of the supply blockage incurred during the COVID-19 pandemic, a Canadian freight rail shutdown could hinder economic activity of businesses that import raw materials, rising prices for consumers who encounter shortages for some products.
“The producers will probably absorb some of those price increases in the short term, but eventually they could get passed on to consumers,” Kyle Handley, a professor of economics at the University of California, San Diego, told ABC News.
Over the coming weeks, a shutdown could slow gross domestic product growth and cause layoffs at directly impacted firms, such as auto factories, Jeff Macher, a professor of strategy and economics at Georgetown University’s Center for Business and Public Policy, told ABC News.
“A prolonged stoppage could lead to a certain amount of job losses,” Macher said.
The potential supply disruption could arrive at a vulnerable period for the U.S. economy. Growth is cooling but remains solid. Price increases have slowed dramatically but remain higher than the Federal Reserve’s target level.
For now, questions remain over the duration and scale of the U.S. economic fallout, experts said.
“If the stoppage ends within a week or so, it’ll have no effect on U.S. GDP,” Macher said. “If it extends beyond that, then it could bleed into and impact the U.S.”
ABC News’ Aaron Katersky and Zunaira Zaki contributed reporting.