The Federal Reserve is under pressure to cut rates for the first time in four years, says ALEX BRUMMER

The time has finally come. After an endless debate in the American financial media, the Federal Reserve (the US central bank) is preparing to cut interest rates today for the first time in four years.

The decision will be watched around the world, but nowhere more closely than at the Bank of England, which will make a decision on bank rate tomorrow after cutting it by a quarter of a percentage point to 5 percent last month.

Lower US borrowing costs are seen as a given. Pessimists about the US economic outlook fear a recession as the labour market weakens, and are urging the Federal Reserve to act boldly and implement a full half-percentage point cut from the current range of 5.25 to 5.50 percent.

They point out that on the way up, when the US central bank was fighting inflation, it moved boldly, with jumps of half a point and even three-quarters of a point. On the way down, Fed Chairman Jay Powell needs to be brave again.

Overall inflation has moved closer to the Federal Reserve’s target of 2 percent. At the same time, unemployment in the United States has risen slightly to 4.2 percent of the labor force from 3.7 percent at the beginning of the year.

Monthly aggregate job gains have fallen. The dilemma for policymakers on the interest-rate-setting Open Market Committee is whether too rapid an easing could jeopardize the gains made on inflation.

The debate has focused on whether a full half-point cut will be opted for.

Rate-setters, who were criticized for being slow as inflation unfolded after the pandemic, may regret not going further now if the economy weakens between now and the November election.

Politics are delicate. Donald Trump is a vocal opponent of Powell and has threatened to fire him if he does not support rate cuts.

Markets believe there is a 59 percent chance that the central bank will take a big stance with the half-point. If that is the case, it could influence Bank of England decision-makers.

All signs have been of “no change” following the previous reduction and there has been unanimity among leading economists.

Decision-makers should also be aware that economic confidence has declined since Labour uncovered an alleged black hole in the budget.

A decisive cut by the United States could create space for a long-term change of attitude at the Bank of England.

Trade route

It’s no secret that Britain’s high streets are struggling. So it’s heartening to learn that Thierry Garnier, chief executive of home improvement group Kingfisher, which pioneered fast online ordering and home delivery at B&Q and Screwfix, is investing in smaller stores on high streets across Britain and Europe.

Screwfix has moved seamlessly from its mail order origins into high street and retail outlets, including a recent opening on my own street in south-west London. It’s a change from the proliferation of coffee shops and barber shops.

The strategy was unveiled with an unexpected full-year update, with a profit range raised to between £510m and £550m.

That was enough to boost shares by 11.2 percent in late trading and 31 percent so far this year.

The French subsidiary Castorama remains a liability, but for the moment remains essential, while new formats are being tested in an attempt to turn things around amid a sluggish economic environment.

The plans are for Screwfix, a retail-focused chain, to have 20 small stores in the town this year and up to 100 in the next period, following a localised model pioneered by Tesco and other food chains.

Intelligent thinking.

Taking AIM

If Rachel Reeves were to decide to end the inheritance and/or capital gains benefits of investing in AIM shares, she would have to sacrifice her growth agenda.

Research for the London Stock Exchange by auditing firm Grant Thornton shows that AIM-listed companies are worth £68bn to the economy and support 778,000 jobs.

These are much more productive than the national average and contribute greatly to alleviating regional disparities.

The Labour Party has pledged to boost growth through its newly created National Wealth Fund and pension fund reforms. The AIM is already working on this, raising long-term capital for innovation and entrepreneurship.

The Government must be careful what it wishes for.