• It’s all but guaranteed that the Federal Reserve will cut interest rates this week.
• It comes after years of aggressive inflation-fighting from the central bank.
• While it will take time to feel the impact of the cuts, lower rates will have benefits.

The time has finally come: Americans are about to find out how big of an interest-rate cut they’ll be getting this week.

On Wednesday, the Federal Open Market Committee will announce its next move on interest rates, and it’s all but certain the nation’s central bank will cut for the first time in four years. The big question is how much.

According to CME FedWatch, which estimates interest rate changes based on market predictions, the size of the rate cut is a coin toss. As of Friday afternoon, there’s a 51% chance the Federal Reserve will cut rates by 25 basis points and a 49% chance it’ll be an extra-large 50-basis-point cut. The probabilities suggest a near-zero chance that the Fed will hold rates steady.

“The time has come for policy to adjust,” Fed Chair Jerome Powell said during his address at a gathering of central bankers in Jackson Hole, Wyoming, last month. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

The consumer price index inflation data that came out last Wednesday was the last large piece of data before the Fed meeting. With August’s core CPI coming in unexpectedly hotter than expected, it was looking likely a 50-basis-point cut wouldn’t happen. That’s because a larger rate cut makes borrowing cheaper, which tends to drive up spending and fuel price increases.

The job market also supports a rate cut this month — the unemployment rate ticked down in August but stayed above its recent lows, and hiring gains have cooled. Lower rates ease pressure on companies’ bottom lines, freeing up budgets for hiring.

Many economists hope that the long-sought soft landing of getting inflation under control while avoiding a devastating recession could be near.

“This rate cut is great news for middle-class families, not only does it underscore the Fed is convinced that inflation is coming under control, it signals the economy has recovered to a faster, sustainable growth trajectory and is ready for further investments in job creation,” Michael Madowitz, the former director of macroeconomic policy at the Washington Center for Equitable Growth, said.

It’ll take time for the cuts to set in

Alena McTier, a Gen Zer, had been looking to replace the car she purchased in 2017 this summer, but she was up against sticker shock. She can’t wait for the Fed to announce rate cuts. She told Business Insider she’s been holding on to her car “until a solid decision is made” from the Federal Reserve on interest rates.

“When they are cut, I am going to actively explore the different rates that are available,” McTier, who is looking to buy a used vehicle, told Business Insider in August.

It could take a while for McTier to see those lower rates. While some parts of the economy will be immediately impacted, there will still be a lag for relief in some sectors.

“Given the fact that monetary policy does take time to work its way through the system, it’ll be the same to some degree with the rate reductions,” Mark Hamrick, senior economic analyst for Bankrate, told Business Insider. He added that prime lending rates will likely be adjusted soon after the decision: “Banks adjust their prime lending rates, the rates reserved for their best customers, and those tend to then be reflected in credit card rates immediately,” Hamrick said.

Credit card interest rates have been at historic highs — a February report from the Consumer Financial Protection Bureau found that the average annual percentage rate on credit cards has almost doubled over the past decade to 22.8% in 2023. However, the lag means that those hoping to pay off credit cards won’t be materially impacted by this month’s rate cut — it’ll take time for the relief to set in.

Rate cuts will also eventually make it cheaper for small businesses to take out loans. When it comes to buying a new house or car, the rate cuts could make things slightly cheaper, but they likely won’t have a significant impact on costs in the short term. That’s because rate cuts’ effects on the housing market are complicated. A rate cut could cause a rush of buyers to enter the market in the short term, driving up prices and competition.

Still, some Americans are shaping their finances in anticipation of a rate cut. NerdWallet found in a July survey that a majority of Americans reported planning to take financial action once interest rates drop, like buying a home or taking out a loan. Almost a quarter of US adults in the survey said they plan to buy a car, while 15% said this about a home.

“Regardless of what the Fed decides, if you have credit card debt, your credit card debt is going to remain expensive even if interest rates begin to go down a little bit,” Sara Rathner, credit cards expert at NerdWallet, said.

How are you shaping your finances in anticipation of an interest-rate cut? Are you planning to make any big purchases or investments? Share your story with these reporters at asheffey@businessinsider.com and mhoff@businessinsider.com.