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Consider this the Federal Reserve’s final summer extravaganza. The Fed is holding out for one more meeting on high interest rates before cutting rates in September. At least that’s how many of us hope this will play out.
For months we have heard that if inflation falls, the Federal Reserve, which is responsible for keeping prices stable, will start cutting interest rates. Cooling consumer prices and lowering borrowing and lending rates would give us all some financial relief.
This story is part of Fed watchdogCNET’s coverage of the Federal Reserve’s Open Committee meetings and what’s next on the interest rate front.
However, the Federal Open Market Committee is not expected to cut interest rates at today’s meeting. Most experts are betting that September will be the only rate cut this year, although some optimistic forecasts predict a second cut before the end of 2024.
The Fed has tried to curb the rising inflation of the past three years by raising 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, which causes consumers and businesses to spend less and reduces demand.
The last weeks Price index for personal consumption expenditureThe Fed’s main tool for measuring inflation, the Fed’s main tool for measuring inflation, showed annual price growth of 2.5% in June. While not a drastic drop from recent monthly reports, it’s still well short of the record highs set in 2022. That’s enough progress to keep lower interest rates 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 starts to rise, as it did in June, the Fed could be more motivated to cut rates.
If you borrow money, whether it’s a mortgage, personal loan, or credit card, higher interest rates increase the amount you have to pay back on your balance. However, if you save money, higher interest rates can help your money grow. Whatever your financial situation, the Fed’s decision could have a significant impact on your finances.
What can we expect from today’s meeting?
Financial experts, who make predictions based on central bank signals, say there is no chance of a rate cut today, but an adjustment in September is very likely.
“The Fed likes to signal in advance what it is doing, and they haven’t announced a rate cut in July,” said Robert Fry, chief economist at Robert Fry Economysaid in an email. “They will likely drop some hints about a September rate cut at the July meeting.”
Those hints should be clear during Fed Chairman Jerome Powell’s press conference today. If you hear the words “moderate” more often than “tighten,” that’s a signal that the Fed is more positive about the direction of the economy and that rate cuts are likely to come in September, said Gregory Heym, chief economist at real estate services firm Brown Harris Stevens.
If Powell suggests the Fed could deliver a second rate cut this year, that could boost investor confidence and boost stock prices. The Fed has three more meetings in 2024:
- September 17-18
- November 6-7
- December 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 more than 20 years and three years of inflated prices are hurting our ability to save and afford everyday goods.
Credit cards
If you have a credit card balance, expect your annual percentage rates to remain high through the end of the year. You should do everything you can to pay off your debt regardless of what the Fed does, especially since any cuts won’t drastically affect your interest rate.
Mortgages
If you waited until interest rates dropped to buy a home, don’t expect major relief anytime soon. But if you are ready to buy, here’s why this expert thinks buying a home with interest rates dropping is a bad idea.
Savings
Savings rates are likely to fall once the Fed signals that it will cut interest rates. While banks have lowered their savings rates from last year’s record highs, you can still lock up annual percentage yields of 5% or more on your money with high-yield savings accounts and CDs.
