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Consider this the Federal Reserve’s final summer fling. It’s holding tight to high interest rates for one more meeting before cutting rates in September. At least, that’s how a lot of us are hoping this plays out.
For months, we’ve been hearing that if inflation goes down, the Federal Reserve — which is responsible for keeping prices stable — will start cutting interest rates. Cooling consumer prices and lowering borrowing and credit rates would give us all some financial relief.
This story is a part of Fed Watch, CNET’s coverage of the Federal Reserve’s Open Committee meetings and what’s next for interest rates.
The Federal Open Market Committee isn’t expected to cut rates at its meeting today, though. Most experts are wagering on September as the one rate cut this year, though some optimistic forecasts project a second cut before the close of 2024.
The Fed attempted to curb soaring inflation over the last three years by hiking the federal funds rate to its current target range of 5.25% to 5.5%. High interest rates make it more expensive to borrow money and take on debt, causing consumers and businesses to pull back on spending and slow demand.
Last week’s Personal Consumption Expenditures price index, the Fed’s primary tool for measuring inflation, showed annual price growth at 2.5% in June. While not a drastic step down from recent monthly reports, it’s significantly less than record highs in 2022. That’s enough progress for lower interest rates to remain on the table this year.
You may see two different numbers when you hear about inflation: The Personal Consumption Expenditures (PCE) and Consumer Price Index (CPI) data. They’re calculated slightly differently, but the PCE is the Fed’s preferred measure of inflation.
Disinflation isn’t the only consideration for the central bank. Higher unemployment and low job growth are signs of a slowing, less robust, economy. If unemployment begins to rise, as it did in June, the Fed might be more motivated to lower interest rates.
If you’re borrowing money — whether it’s taking out a mortgage, a personal loan or using a credit card — higher interest rates increase the amount you have to repay on your balance. If you’re saving money, however, higher interest rates can help you grow your money. Whatever your financial situation, the Fed’s decision can have a significant impact on your finances.
What should we expect at today’s meeting?
Financial experts, who make predictions based on the central bank’s cues, say that while there’s no chance for a cut today, a September adjustment is very likely.
“The Fed likes to signal their moves in advance, and they haven’t signaled a July rate cut,” Robert Fry, chief economist at Robert Fry Economics, said in an email. “They’ll probably drop some hints of a September rate cut at the July meeting.”
Those hints should be clear during Fed Chair Jerome Powell’s press conference today. If you hear the words “moderating” more than “tightening,” that signals the Fed is feeling more positive about the economy’s direction, and rate cuts are likely to come in September, according to Gregory Heym, chief economist at real estate service company Brown Harris Stevens.
If Powell suggests that the Fed could make a second rate cut this year, that could positively influence investor confidence and send stock prices up. The Fed has three meetings left in 2024:
- Sept. 17-18
- Nov. 6-7
- Dec. 17-18
How the Fed’s decision affects your money
Experts say we shouldn’t wait for a Fed meeting to make financial decisions. Interest rates are the highest in over 20 years, and three years of inflated prices are hurting our ability to save and afford everyday goods.
Credit cards
If you’re carrying a credit card balance, expect your annual percentage rates to remain high through the end of the year. You should be doing everything you can to pay off your debt regardless of what the Fed does, particularly since any cuts won’t drastically affect your interest rate.
Mortgages
If you were waiting for rates to drop to buy a home, don’t expect major relief anytime soon. But if you’re ready to buy, here’s why this expert thinks trying to time a home purchase with interest rate cuts is a bad idea.
Savings
Savings rates are likely to drop as soon as the Fed signals it will cut interest rates. Although banks have lowered their savings rates from the record highs of last year, you can still lock in annual percentage yields of 5% or more on your money with high-yield savings accounts and CDs.
