Federal Reserve begins its final interest rate policy meeting – NBC Bay Area

The Federal Reserve begins its final policy meeting of the year, with the interest rate decision due Wednesday afternoon.

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Despite high inflation, the Federal Reserve is expected to cut interest rates this week for the third straight meeting.

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Cal State East Bay economics Professor Farhad Sabetan said interest rates are essentially the “engine for economic growth,” with lower rates encouraging investment and business, which in turn benefits everyone.

While the goal interest rate is typically 2%, Sabetan explained that the interest rates have been stuck at 3%, making the Federal Reserve’s choice important.

To adjust for inflation, the Federal Reserve must also inspect the markets to see whether interest rate cuts are possible or needed. This means it is possible that the Federal Reserve may skip a cut this time around due to new inflation fears.

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“What they’re trying to do is to gradually lower the interest rate given the income, the data that we will have on consumer price indices and generally the rate of inflation. They will adjust according to the data that we get,” Sabetan said.

With the exchange of power in presidential administration, people are afraid that prices will go up due to President-elect Donald Trump’s proposed tariffs. Trump proposed an overall tariff of 10-20% on all imports but higher tariffs on China at about 60% and 100% on cars from Mexico.

Sabetan said due to this variation, it’s hard to predict what prices will even begin to look like if these tariffs are implemented. Depending on the magnitude of the tariffs, there will be significant price rises, especially in California.

“Because California is bordering Mexico and if the tariffs on Mexican imports increases, we are the ones who are going to bear the brunt of that import,” Sabetan said. “A lot of China’s traffic comes through the ports of California, and that’s going to have an impact on us as well.”