Right now, investors are firmly expecting the Federal Reserve to cut interest rates at their next meeting on September 18. This isn’t just a hunch – it’s based on a careful reading of the economic data coming in, which shows signs of a slowing economy, easing inflation, and a job market that, while still strong, is beginning to show some cracks.

First, let’s talk about the Fed’s role. They control the federal funds rate, which influences how much it costs banks to borrow from each other overnight. This rate is a cornerstone of the broader interest rate environment – it impacts everything from the rates on business loans to mortgages and even the returns on savings accounts and bonds.

Over the past year, the Fed has been raising rates aggressively to combat high inflation. Higher rates make borrowing more expensive, which can cool off spending and investment, and in turn, help bring inflation down. But now, with inflation finally showing signs of cooling, the concern is that if the Fed keeps rates too high for too long, it could choke off economic growth and tip the economy into a recession.