The Federal Reserve is expected to make its first rate cut on Wednesday after more than two years of tight monetary policy. The central bank’s target rate currently stands at 5.25% to 5.5%.

Higher rates have been tough on borrowers, with the rate on the 30-year fixed mortgage rising to 6.12% the week of Sept. 13, according to MND. That’s up from 4.29% the week of March 11, 2022, just before the Fed made its first hike. Mortgage loans have also become more expensive, with rates rising to 8.49% the previous week, up from 5.96% in March 2022, according to Bankrate. Credit card interest rates have also risen more than 400 basis points since the Fed began raising rates, rising to 20.78% the previous week, Bankrate found. One basis point is equal to one-hundredth of one percent.

The Fed’s tough policy has offered a silver lining for savers, however. The annual percentage yield on a five-year certificate of deposit has risen to 2.87%, from 0.5% in March 2022, according to Haver. Yields on money market funds have also risen, standing at 0.46% last week, up from 0.08% paid just before the Fed began tightening in March 2022, Haver found.

–Darla Market, Nick Wells

In the hours leading up to the Federal Reserve’s rate decision, investors are divided over the extent to which policymakers will cut rates.

According to CME FedWatch, Fed funds futures trading suggests a 55% probability that central bank officials will cut rates by 50 basis points. They also imply a 45% probability that the Fed will cut rates by 25 basis points. Currently, the Fed’s target rate is between 5.25% and 5.5%. One basis point equals one hundredth of a percent.

Investors should be careful what they wish for, said Aditya Bhave, senior U.S. economist at Bank of America. The firm expects a 25 basis point rate cut on Wednesday, and warns that a 50 basis point rate cut could ultimately be a worrying sign.

“Risk assets could initially rally on the back of this dove-like surprise,” Bhave wrote Wednesday. “But we caution investors that the 50bp cut signals less confidence in the Fed’s ability to achieve a soft landing.”

–Darla Market