On Wednesday afternoon, the Federal Reserve will announce its third interest rate decision for 2024, but consumers are unlikely to see any near-term relief from higher borrowing costs.
At the beginning of the year, about 9 out of 10 economists It was expected The Federal Reserve will cut its benchmark interest rate at its meeting on May 1. However, shifting economic winds and stubbornly high inflation have complicated policymakers' plans. As a result, Wall Street now expects the Fed to keep interest rates steady today, according to economists polled by financial data firm FactSet.
The Fed is likely to hold off on cutting interest rates until later in 2024, with most experts now planning to make its first rate cut at the central bank's September or November meeting, according to FactSet data. This means that consumers are likely to continue to face higher costs for all types of loans, from credit cards to mortgages, even as the costs of goods and services continue to rise.
“The Fed has repeatedly said that it will be really difficult to tame inflation, and they are more than willing to keep interest rates high until inflation becomes more manageable,” Jacob Channel, chief economist at LendingTree, told CBS MoneyWatch. “I understand why people are concerned, and perhaps a little upset, that the Fed is not encouraging lower interest rates.”
But he added that if the Fed cuts interest rates prematurely and inflation rises to higher levels, that could make the economic situation worse for many consumers and businesses.
When will the Fed meet this week?
The Federal Reserve's Open Market Committee will announce its interest rate decision on Wednesday at 2 p.m. ET. Fed Chairman Jerome Powell will speak at a press conference at 2:30 pm to explain the central bank's economic outlook and answer questions about its decision.
When will the Fed cut interest rates?
That is unlikely to happen today, as nearly 97% of economists surveyed by FactSet expect the Fed will stick with the current benchmark rate of 5.25% to 5.5%. In fact, despite the Fed's intervention earlier this year Three interest rate cuts in 2024Wall Street investors now expect just one cut.
At the heart of the issue is Stubborn inflation, which rose this year due to higher housing and gasoline costs, defying the Federal Reserve's efforts to tame prices. Consumer prices in March rose 3.5% On an annual basis, upwards of February increase by 3.2% And January 3.1% increase On an annual basis.
About half of economists expect a cut at the Fed's September 18 meeting, while a majority expects a cut at the November 7 meeting. Channel noted that these cuts would likely be a quarter of a percentage point each, rather than a more significant cut of half a percentage point.
“It is not surprising that investor expectations of future interest rate cuts have declined significantly,” Stephen J. Rich, CEO of Mutual of America Capital Management, said in an email. “At this point, we see the possibility of two cuts of up to half a percentage point this year.”
Soletta Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, also believes the Fed will have to keep interest rates high for longer. It expects the Fed to cut its key short-term interest rate twice this year, likely starting in September, according to a research note.
How will the Fed's decision affect your money?
The channel said it is preparing for continued rise in borrowing costs.
“In light of the meeting, we may have to get used to the average 30-year mortgage interest rate exceeding 7% again,” he said. “The 7% rates that people fear are likely to persist.”
Credit card rates that have arrived Record levelsHe indicated that he would not go down either.
“Borrowing money will remain relatively expensive for some time,” Channel added. “We won't wake up next August and interest rates will go back to zero.”
If there's a silver lining to this, it's for savers, who can now find higher-interest savings accounts with returns above 5%, according to Ken Tomin, a banking expert at DepositAccounts.com. Other savings vehicles such as certificates of deposit can also offer great rates.
“Infuriatingly humble alcohol fanatic. Unapologetic beer practitioner. Analyst.”