The Federal Reserve left interest rates unchanged again at its meeting that concluded on May 1, marking the sixth consecutive time it has done so. For now, that leaves the central bank’s benchmark interest rate between 5.25% and 5.50%, where it has remained since last July, and which marks its highest level in 23 years.
At the start of 2024, the Fed was poised to make multiple rate cuts throughout the year. But now, the timing and number of those cuts for this year is up in the air, given “how stubborn inflation is proving, paving the way for a longer period of high interest rates,” said The New York Times.
What will the Fed do next?
“It is very unclear when the Fed will finally begin to reduce interest rates,” said CNN Business, though Federal Reserve Chair Jerome Powell “said there are multiple scenarios that could kick off rate cuts, including a scenario in which inflation resumes its slowdown as both the economy and job market remain strong.”
But for as long as there’s “a persistently strong economy, coupled with inflation continuing to stall,” the Fed will continue to leave rates unchanged — though Powell did note that “‘unexpected weakening in the labor market’ could speed up the first cut,” said CNN.
The number of rate cuts that 2024 could bring is up in the air as well. When asked about the Fed’s earlier projection of three at the May 1 press conference, “Powell did not provide a direct answer,” said CNN. Meanwhile, “Wall Street investors now forecast just a single cut,” said CBS News.
Still, it doesn’t seem like raising rates is on the table. When asked about the possibility, Powell indicated that “he thinks it’s ‘unlikely’ that the next policy rate move will be a hike,” said The New York Times.
When is the next interest rate decision?
The next Federal Reserve meeting is scheduled for June 11-12. This meeting will also include a Summary of Economic Projections, which will offer updated forecasts from Fed members on the benchmark interest rate, economic growth and unemployment.
The timing of any rate changes will depend on the data, per Powell’s stance thus far. That said, “the Fed is likely to hold off on cutting rates until later in 2024, with most experts now penciling the first rate reduction for the central bank’s September or November meeting,” said CBS News, citing data from FactSet.
How do interest rates affect the economy?
The Fed uses interest rates “like a gas pedal and a brake pedal,” Forbes said. Lowering rates stimulates the economy; raising rates slows the economy down. The agency doesn’t actually set the funds rate — banks do that — but “the Fed assumes that banks will use it as a floor in their own lending,” Forbes added.
Rate changes usually take “at least 12 months” to have “widespread economic impact,” Investopedia said. But the stock market reacts immediately. For example, when Fed chairman Jerome Powell signaled last year that further interest rate hikes were likely, the market went into a bit of a tailspin. The major indexes each fell more than 1%. Beyond stocks selling off, “Treasury yields rose and the dollar extended again after Powell’s comments,” said Reuters.
What do rate hikes mean for your wallet?
As Kiplinger said, “rate hikes are a blessing and a curse for consumers.” When the Fed raises rates, consumers will pay higher interest rates on debt like credit cards, home equity lines of credit, and private student loans. However, on the flip side, savings rates also tend to increase. In the face of rate hikes, Kiplinger offers the following pieces of advice:
- Pay off any debt. Aim to pay off your debt before interest rates get any higher. While the impact might feel gradual initially, continued increases ultimately can make paying off debt more challenging.
- Lock in rates if you can. For those with a home equity line of credit, consider locking in a lower rate on all of a portion of your balance.
- Take advantage of top savings rates. Finally, take advantage of increasing savings rates. Kiplinger advises consumers that they’ll usually find the best rates at online banks or other online financial institutions, including the ones in the table below.
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Stubborn inflation forestalls anticipated rate cuts
