WASHINGTON — No one knows how Tuesday’s presidential election will turn out, but the Federal Reserve’s decision two days later is much easier to predict: As inflation continues to cool, the Fed moves to cut its interest rates for the second time this year.

The presidential race could still be up in the air when the Fed wraps up its two-day meeting Thursday afternoon, but that uncertainty would have no effect on its decision to further cut its benchmark rate. The Fed’s future actions, however, will become more uncertain once a new president and Congress take office in January, particularly if Donald Trump wins the White House again.

Trump’s proposals to impose high tariffs on all imports and launch mass expulsions of illegal immigrants, as well as his threat to encroach on the Fed’s normally independent rate decisions could cause a sharp rise in inflation, economists said. Higher inflation would, in turn, force the Fed to slow or stop its rate cuts.

On Thursday, Fed policymakers, led by Chairman Jerome Powell, are on track to cut their benchmark rate by a quarter point, to around 4.6%, after implementing a half-point cut. point in September. Economists expect another quarter-point rate cut in December and possibly more similar measures next year. Over time, rate cuts tend to lower borrowing costs for consumers and businesses.

The Fed cuts rates for a different reason than it usually does: It often cuts rates to stimulate a sluggish economy and weak job market by encouraging more borrowing and spending. But the economy is growing rapidly and the unemployment rate is at 4.1%, the government reported Friday, even though hurricanes and the Boeing strike sharply dampened net job growth last month.

Instead, the central bank is lowering rates as part of what Powell called “a recalibration” to a lower inflation environment. When inflation hit a four-decade high of 9.1% in June 2022, the Fed made 11 rate hikes, ultimately raising its policy rate to around 5.3%, also the highest in four decades.

But in September, year-over-year inflation fell to 2.4%, barely above the Fed’s 2% target and equal to its 2018 level. Now, Powell and other Fed officials have said they think high borrowing rates are a good thing. is no longer necessary. High borrowing rates generally limit growth, especially in interest-rate-sensitive industries such as real estate and auto sales.

“The restriction was in place because inflation was high,” said Claudia Sahm, chief economist at New Century Advisors and a former Fed economist. “Inflation is no longer high. The reason for the restriction has disappeared.

Fed officials have suggested their rate cuts will be gradual. But almost all expressed support for further cuts.

“For me, the central question is how much and how quickly to reduce the (Fed’s) policy rate target, which I believe is currently set at a restrictive level,” said Christopher Waller, influential member of the Fed board. said in a speech last month.

Jonathan Pingle, an economist at Swiss bank UBS, said Waller’s wording reflected “an unusual confidence and belief that rates were going to fall.”

Next year, the Fed will likely begin to consider how low its benchmark rate should go. Ultimately, they may want to set it at a level that neither restricts nor stimulates growth – “neutral” in Fed parlance.

Powell and other Fed officials acknowledge that they don’t know exactly where the neutral rate lies. In September, the Fed’s rate-setting committee estimated it at 2.9%. Most economists think it’s closer to 3 to 3.5 percent.

The Fed chairman said officials need to gauge where neutrality lies based on how the economy responds to rate cuts. For now, most officials are confident that at 4.9%, the Fed’s current rate is well above neutral.

Some economists, however, say that with an economy that appears healthy, even with high borrowing rates, the Fed does not need to ease credit much, if at all. The idea is that they might already be close to the level of interest rates that neither slows nor stimulates the economy.

“If the unemployment rate remains in the 4% range and the economy continues to grow at 3%, does it matter that the (Fed) rate is between 4.75% and 5%?” asked Joe LaVorgna, chief economist at SMBC Nikko Securities. “Why are they cutting now? »

While the Fed’s final meeting will take place just after Election Day, Powell will likely answer questions at his news conference Thursday about the outcome of the presidential race and its potential impact on the economy and l ‘inflation. He can be expected to reiterate that the Fed’s decisions are not affected by politics at all.

During Trump’s presidency, he imposed tariffs on washing machines, solar panels, steel and a range of products from China, which President Joe Biden maintained. Although studies show that washing machine prices have increased as a result, overall inflation has not increased much.

But Trump is now proposing much higher tariffs — essentially import taxes — that would raise prices on about 10 times more goods from abroad.

Many mainstream economists are alarmed by Trump’s latest proposed tariffs, which they say would almost certainly reignite inflation. A report from the Peterson Institute for International Economics concludes that Trump’s major tariff proposals would cause inflation to be 2 percentage points higher next year than it otherwise would have been.

The Fed may be more likely to raise rates in response to tariffs this time around, according to economists at Pantheon Macronomics, “given that Trump is threatening much larger tariff hikes.”

“As a result,” they wrote, “we will reduce the funds rate cut in our 2025 forecast if Trump wins.”