The Federal Reserve will make an interest rate decision this week. Here's what to expect. (2024)

MoneyWatch

By Aimee Picchi

Edited By Alain Sherter

/ CBS News

Economic growth accelerates in 2nd quarter

This month marks the one-year anniversary of the Federal Reserve's most recent interest rate hike, which pushed rates to their highest point in 23 years. Now, with inflation continuing to cool, economists are making predictions about when the central bank will begin cutting.

The Fed is scheduled to meet on July 30-31, with Chair Jerome Powell set to discuss the bank's rate decision at 2:30 p.m. on Wednesday. After this week's session, the Fed will next discuss its benchmark federal funds rate at its September 17-18 meeting.

Wednesday's announcement is likely to offer a mixed bag for consumers and businesses grappling with the highest borrowing costs in years, experts say.

First, economists say it's unlikely the Fed will announce a rate cut this week because Powell has signaled he wants to see more proof that inflation is closer to the bank's goal of a 2% annual rate before trimming. But Powell is also expected to offer a hint on when the bank will start cutting, with about 9 in 10 economists pegging the September meeting for the Fed's first rate reduction since 2020, according to financial data company FactSet.

"The case to cut is already strong, and the Fed will likely use the July meeting to plant a seed that a cut in September is on the table," predicted Ryan Sweet, chief U.S. economist at Oxford Economics, in a Friday research report.

The markets are still betting on more than a single rate cut in 2024, even though Fed officials earlier this year projected just one rate cut later in the year. But with inflation easing faster than projected in June, futures markets have priced in a 64% likelihood that the Fed will cut rates three times this year — in September, November and December, accordingto CME FedWatch.

What is the Fed's current interest rate?

The federal funds rate — what banks charge each other for short-term loans — now sits in a range of 5.25% to 5.5%. Most economists polled by FactSet expect the Fed to leave that rate unchanged until its September meeting.

The Fed's last hike was in July 2023, when the benchmark rate was brought to its current level. Starting in early 2022, the central bank ratcheted up interest rates to combat the hottest inflation in 40 years, which hit a peak of 9.1% in June 2022. Since then, inflation has fallen to about 3% on an annual basis.

How much could interest rates be cut in 2024?

That will depend on economic trends over the next weeks and months, with the Fed monitoring numerous data points, ranging from inflation to the monthly jobs report.

Economists are penciling in a Fed rate cut of 0.25 of a percentage point in September, which would trim the benchmark rate to a range of 5% to 5.25%.

"At the moment, a modest cut of 25 basis points in September seems likely. If that goes well, we could even see two additional 25 basis point cuts before 2024 comes to an end," said Jacob Channel, chief economist at LendingTree, in an email. "Cuts are far from guaranteed, however. Remember, the Fed is designed to pivot quickly should something unexpected happen."

Slightly more than half economists are predicting the benchmark rate will be cut to a range of 4.5% to 4.75% by December, according to FactSet.

What is the Fed's rate decision based on?

The Fed has a twofold policy goal, also called the dual mandate — to keep prices stable and to ensure maximum employment.

Inflation continues to cool, reflecting that the prices of goods and services are rising at a progressively slower rate since their 2022 peak. At the same time, the Fed is closely watching employment data. Because rate hikes are designed to slow the economy and tame inflation, they can also cast a pall over hiring.

And there are signs the labor market is cooling, as the Fed has intended. Job growth has averaged a solid, but unspectacular, 177,000 a month for the past three months, down from a red-hot three-month average of 275,000 a year ago.

Powell and other Fed officials have underscored that they're paying nearly as much attention to the threat posed by a hiring slowdown as they are to inflation pressures. That shift in the Fed's emphasis toward ensuring that the job market doesn't weaken too much has likely boosted market expectations for a rate cut.

But some economists and policy experts believe the Fed has already waited too long to cut rates, citing weakening job numbers and cooling inflation. Some also say that high interest rates are making affordable housing out of reach for many.

"The Fed should start cutting rates this week — any delay risks damaging the labor market," said Bharat Ramamurti, senior advisor for economic strategy at the American Economic Liberties Project and former deputy director of the National Economic Council, on a conference call with reporters to discuss the Fed's meeting this week.

And some experts are urging the Fed to cut by 0.5 percentage points, which would be a reduction that's twice as large as most economists are forecasting.

"They can bring down costs for American families," said Kitty Richards, senior fellow at the Groundwork Collaborative and a former Treasury official, on the same call. "I would go further than 50 basis points — if you think the Fed went too high, they can cut more aggressively as well."

What would a rate cut mean for your money?

There could be some relief for borrowers in the months ahead, experts say. Already, mortgage rates have downshifted to just under 6.8% today after hitting 7.2% in May.

"At first glance, a decline of 0.44 percentage points may not seem like a big deal. But, in mortgage land, a 44 basis-point drop is nothing to scoff at," saving about $100 a month in payments for buyers of a $350,000 home, Channel noted.

Rates could trend toward the 2024 lows, ending the year closer to 6% for a 30-year fixed mortgage, he predicted.

Credit card companies could lower their APRs in response to cuts from the Fed, said LendingTree credit analyst Matt Schulz. The average interest rate on a new credit card now at 24.84%, the highest since LendingTree started tracking rates in 2019.

"If the Fed cuts rates by a quarter-point, dropping the APR to 24.59%, you'll save $21 and take 1 less month to pay off," he said. "That's not nothing, but it is far less than what you could save with a 0% balance transfer credit card."

—The Associated Press contributed to this report

    In:
  • Interest Rates
  • Federal Reserve

Aimee Picchi

Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.

The Federal Reserve will make an interest rate decision this week. Here's what to expect. (2024)

FAQs

What is the expectation for federal interest rate? ›

In summary. We continue to expect the Fed to cut the federal funds rate by 0.25% to a target range of 5.0% to 5.25%, most likely in September, with one or two more likely by the end of the year if the current trends with inflation and the labor market hold.

Is the Fed going to drop interest rates? ›

The bottom line

Inflation is beginning to cool, but it could take time to reach the Fed's 2% inflation rate target. While the central bank is projected to lower rates in September, the consensus indicates more meaningful mortgage rate changes may not happen until late 2024 or early 2025.

When to expect rate cuts? ›

Markets are now projecting three cuts in 2024, taking the federal-funds rate down to 4.50%-4.75% by December. Markets expect a further four cuts in 2025, taking the rate down to 3.50%-3.75% by the end of the year.

What would you expect to happen when the Federal Reserve bank raises interest rates? ›

Higher interest rates can make borrowing money more expensive for consumers and businesses, while also potentially making it harder to get approved for loans. On the positive side, higher interest rates can benefit savers as banks increase yields to attract more deposits.

Will mortgage rates go down to 3 again? ›

Mortgage rate predictions

Experts also don't expect any drastic dips in rates — say to 3% or 4%, as experienced during the height of the COVID-19 pandemic.

What is prime rate expected to do in 2024? ›

Think about your cost structure and debt load carefully for 2024. The prime rate today is 8.5%. The Fed signaling cuts equivalent to 75 basis points would put prime between 7.5% and 7.75%. This, of course, assumes the 30-year average spread between the fed funds rate and Prime holds.

What will happen if Fed raises interest rates today? ›

When the Fed increases the federal funds rate, it typically pushes interest rates higher overall, which makes it more expensive for businesses and individuals to borrow. The higher rates also promote saving. The goal is to reduce the spending that is driving up prices and overheating the economy.

What is the Fed rate today? ›

What is the current Fed interest rate? Right now, the Fed interest rate is 5.25% to 5.50%. The FOMC established that rate in late July 2023.

How likely are interest rates to drop? ›

However, rates aren't expected to dip into the 3% or 4% range in the foreseeable future. At best, prospective homebuyers could expect rates to fall into the lower 6% range throughout the end of 2025.

What is the date of the next Fed meeting in 2024? ›

The next Federal Open Market Committee (FOMC) meeting will be held on September 17-18, 2024.1 This is one of the key dates that investors, economists, and policymakers mark on their calendars.

Will CD rates go up in 2024? ›

CD rate forecast: 2024

Projections suggest that we'll see no rate increases in 2024, and that the Fed will likely drop its rate for the first time this year in September, according to the CME FedWatch Tool on July 31.

Do rates go up or down in a recession? ›

Interest rates usually fall early in a recession and then rise later as the economy recovers. This means that the adjustable rate for a loan taken out during a recession is likely to rise once the downturn ends. The fixed-rate loan at recession pricing could be a better deal in the long run.

Where to put your cash after the Fed's interest rate increase? ›

Since savers don't know which way rates will move next, advisers often recommend a CD ladder. This means buying a series of CDs with progressively later maturity dates. Laddering ensures that some portion of your savings matures each year and can be spent or moved into other investments as rates change.

How high will savings interest rates go in 2024? ›

According to the Summary of Economic Projections, the Fed may implement up to three 25-basis point interest rate cuts in 2024—bringing the federal funds rate closer to 4.60%.

What happens to the stock market when the Fed raises interest rates? ›

Rising or falling interest rates affect consumer and business psychology. When interest rates are rising, both businesses and consumers will cut back on spending. This will cause earnings to fall and stock prices to drop.

What is the interest rate forecast for the next 5 years? ›

New Outlook On Monetary Policy

The median projection for the benchmark federal funds rate is 5.1% by the end of 2024, implying just over one quarter-point cut. Through 2025, the FOMC now expects five total cuts, down from six in March, which would leave the federal funds rate at 4.1% by the end of next year.

Will the Fed lower interest rates in 2024? ›

As recently as last month, Fed officials had collectively forecast just one rate reduction in 2024 and four in 2025 and 2026, suggesting that they lean toward a more measured pace of cutting rates about once a quarter.

What is the long term AFR for March 2024? ›

Long-term covers loans and instruments with maturities longer than nine years. The Section 7520 rate for March 2024 is 5.00%.

What will the mortgage interest rate be in 2025? ›

That's because major forecasts expect rates to continue to decrease further, with mortgage APRs getting closer to 6% in 2025. Financial planners and mortgage experts who spoke to CNBC were split on whether it's a good time to refinance considering rates could continue to fall.

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