Fed set to enter new era with first rate cut in 4 years Wednesday. But what comes next?

When the Federal Reserve meets Wednesday, officials are expected to mark the end of an era as they cut interest rates for the first time in four years and chart a course for lower rates over the next two years.

“This is a big meeting,” said former Kansas City Fed president Esther George. “It’s one that’s been foreshadowed since late last year. It’s long been expected.”

The central bank is expected to lower rates by a quarter percentage point to a new range of 5.0%-5.25% from its 23-year high of 5.25% to 5.5% on Wednesday when their policy meeting concludes. The actions will officially mark the termination of the most aggressive inflation-fighting campaign since the 1980s.

Investors’ bets on how deeply the Fed will cut rates for the first time have been fluctuating widely. As of early Monday morning, traders were pricing in an almost 60% chance of a reduction of 50 basis points, versus 40% for 25 basis points. The odds were split 50-50 on Friday, compared with an 85% backing for the smaller cut a week or so ago.

 

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