The Federal Reserve is ready to cut rates for the first time since 2020

The US central bank is set to cut interest rates this week, but UK policymakers are expected to be more cautious.

The Federal Reserve is expected to cut rates on Wednesday for the first time since 2020.

Chairman Jerome Powell has hinted at a cut as central banks try to ease the burden on lenders. Borrowing costs have been raised to combat rising inflation, which peaked at 9.1 percent in the United States two years ago.

Last week’s data showed consumer price inflation fell from 2.9% in July to 2.5% in August, beating predictions that it would reach 2.6%. It last fell in February 2021.

But economists believe the bank will be cautious, fearing that a drastic reduction could cause inflation to accelerate again. There are conflicting predictions on whether it will opt for a 0.25% or 0.50% cut.

The Bank of England’s next rate-setting meeting will follow the Federal Reserve’s on Thursday. The Monetary Policy Committee (MPC) is expected to opt for no changes, having announced a cut last month.

Barclays analysts say they expect the Bank to keep rates at 5 percent and that “the tone of the minutes remains cautious, although they acknowledge further progress towards a sustainable return of inflation to target.”

A cut is forecast for November, December and February, then again in May and August, until reaching the 3.75 percent interest rate in August 2025.

Matthew Ryan of global financial services firm Ebury said: “While MPC members will no doubt be encouraged by recent progress on inflation, we suspect the bank would need to see a further cooling in the labour market, particularly a continued easing of wage pressures, to commit to an aggressive pace of cuts.

‘The statement may hint at the likelihood of a rate cut in November, though we believe it will stick to the line that rates will not be cut ‘too fast or too much.’

UK inflation data for August will also be released on Wednesday. Headline inflation (the consumer price index, CPI) rose by 2.2% in the year to July, up from the 2% recorded in June, which is the Bank’s target level.

Inflation reached 11.1 percent in October 2022, the highest in 40 years.