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With the Federal Reserve set to release its latest policy statement on Wednesday, inflation-weary consumers are eager to know when the central bank might start lowering its benchmark interest rate, offering relief from high borrowing costs.
Unfortunately for consumers, the Fed is widely expected to keep rates steady amid persistently high inflation, which remains more than a percentage point above the central bank’s target of around 2% annually.
Almost all economists surveyed by the financial data firm FactSet predict policymakers will maintain the federal funds rate of 5.25% to 5.5%—the highest level in 23 years, unchanged since the Fed’s July 2023 meeting. However, consumers and investors will keenly listen for hints about the Fed’s rate outlook.
Earlier this year, Federal Reserve officials forecasted three rate cuts, but the persistently high inflation has clouded the timeline for easing borrowing costs.
“Inflation is proving to be sticky in the near term and continues to linger above the Federal Reserve’s 2% target,” “This will likely keep the Fed on hold through the summer, although the consensus is that inflation will gradually decline over the remainder of the year.”
The delay in cutting rates is particularly hard on lower—and middle-income consumers, who are struggling with elevated inflation, which raises the costs of essentials like groceries and rent. In contrast, high borrowing costs make carrying credit card debt or taking out loans more expensive.
Here’s what to expect from the upcoming Fed meeting and beyond.
When Will the Federal Reserve Cut Rates?
Many economists believe the Fed will cut rates sometime in 2024—just not at the June 12 meeting.
According to FactSet, about 90% of economists predict the Fed will keep rates steady at its July 31 meeting. The first possible rate cut might occur at the September 18 meeting, with about half of economists forecasting the year’s first rate cut for that date.
Most economists do not expect the Fed to increase rates further, given that inflation has steadily receded from its peak of 9.1% in June 2022. In April, consumer prices rose at an annual rate of 3.4%. The Personal Consumption Expenditure Index—the Fed’s preferred inflation gauge—was up 2.7% from a year ago.
How Many Times Is the Fed Likely to Cut Rates in 2024?
Both Wall Street and consumers will be looking for the Fed’s indications about whether it still predicts three rate cuts in 2024, as previously indicated. Some economists are already revising their forecasts.
The Fed will also release updated economic projections on Wednesday, which are expected to show an outlook of one or two rate cuts by year-end, down from the three predicted in March.
What Influences the Fed’s Decision on Interest Rates?
Fed Chairman Jerome Powell has repeatedly emphasized that the central bank prefers to keep rates elevated until inflation falls closer to its 2% goal to avoid triggering another round of price increases.
Although inflation has retreated from its 2022 highs, it has remained at an annual rate of about 3.4% to 3.5% in 2024, driven by higher housing costs. The Fed’s statement after its May 1 meeting suggests “a lack of further progress” in reducing inflation.
The Department of Labor is scheduled to release the Consumer Price Index for May on Wednesday. Economists expect May inflation to be at 3.4%, unchanged from April.
If inflation data shows further improvement, it could give policymakers the confidence to reduce the benchmark rate within a few months.
How Will the Fed’s Decision Impact Mortgages and Other Loans?
If the Fed leaves rates unchanged, consumers will likely continue paying more for mortgages, auto loans, and credit card debt.
Although the Fed does not directly set mortgage rates, its benchmark rate influences them. Without an anticipated rate cut, mortgage rates could remain around 7% for some time, although they might fluctuate based on other economic factors, noted LendingTree senior economist Jacob Channel.
“It is becoming clearer and clearer that the Fed isn’t going to lower interest rates anytime soon,”
If there’s a bright spot for consumers, high-interest savings accounts, certificates of deposit, and other products continue to be available. However, some banks have slightly lowered their rates in anticipation that the Fed will cut rates later this year.
