The US Federal Reserve has cut rates in a dramatic move that will have a major impact on the American economy and could help determine who occupies the White House for the next four years.

By cutting rates by half a per cent, the Fed has signalled it thinks the battle against the high inflation that has plagued the US economy over the past three years has mostly been won.

Federal Reserve chair Jerome Powell wouldn't declare total victory.

"We're not saying mission accomplished," he said.

It's a remarkable result for Powell and the rest of the board.

They seem to have achieved what many thought near impossible, the fabled soft landing — conquering inflation without steering the economy into a recession.

But they're not the only ones claiming responsibility.

Politicians seize on rate cut

Given the timing of the cut, it has become a political debating point.

Polls have shown the economy is a major issue for voters.

Today, Powell painted a picture of an economy in robust health with a rosy outlook — low unemployment, strong wages growth and inflation mostly tamed.

It's exactly the type of report card a ruling party wants to receive fewer than two months before an election.

White House press secretary Karine Jean-Pierre seized upon the decision as evidence the policies of the Biden-Harris administration have been working.

"Interest rates are falling, and the economy remains strong, which many critics thought was impossible," she said.

Republican presidential candidate Donald Trump hinted at a nefarious motivation behind the decision, suggesting the Fed could be "playing politics".

Powell, who was appointed by Trump, rejected this accusation.

The board of the Fed's job, he said, was "to support the economy on behalf of the American people" and "nothing else is discussed".

Trump suggested the only reason, aside from "playing politics", for a 0.5 per cent cut was because "the economy's really bad".

The former president knows one of his strongest attacks on current administration is the state of the economy.

The worse the economy, the better his chances of winning in November.

For years he's railed against President Joe Biden and now Vice-President Kamala Harris for high price rises.

Inflation being basically back at target is good news for the Biden-Harris administration politically.

However, the problem for Harris in the upcoming election is that prices aren't actually dropping; they're just not rising at the rate they were.

Eventually, people will adjust to the new prices, but right now, it's still easy to compare the current price of everyday goods to what they were three or four years ago.

The Trump campaign claims that inflation means a typical American family is now paying $US28,000 ($41,500) a year more for goods than they were before Biden was elected.

This has resonated with many families, who have been shocked when they've gone to the supermarket or renewed an insurance policy.

They remember what prices were before inflation started running rampant.

But, this argument ignores the wage increases that the typical American family has also received over that time period.

In recent months, wage hikes have outstripped inflation, meaning people are better off on average.

That's a more difficult argument to make, though, and at the moment, it appears Trump's framing of the economy aligns more with the views of the majority of Americans.

The implications for Australia

The Federal Reserve is the most important central bank in the world, and its decisions have ramifications well beyond America's borders.

Given the interconnectedness of much of the world's financial systems, there's usually a convergence of interest rate settings.

By cutting rates today, the Fed is once again heading in the same direction as the world's arguably second most influential central bank, the European Central Bank, which has cut rates twice in the past three months.

The question for many Australians is whether our own central bank, the Reserve Bank of Australia (RBA), will follow suit.

Australia's inflation rate is still substantially higher than the target, and the jobs market has remained surprisingly robust.

This suggests that the RBA will probably be waiting for further evidence that inflation has been tamed domestically before they follow the Fed's lead.

There's likely to be an interesting parallel between the Fed and RBA, the closer it gets to the election the more contentious their decision will become.