William Simpson
The Federal Reserve on Wednesday afternoon said it is keeping your referral rate stable following a rise in inflation, meaning consumers are unlikely to see any relief in the short term due to high borrowing costs.
At the beginning of the year, about 9 in 10 economists had prediction that the Fed would cut its benchmark rate at its May 1 meeting. However, changing economic winds and persistently high inflation have complicated policymakers’ plans. On Wednesday, the Fed he said is keeping the federal funds rate in a range of 5.25% to 5.5%, the same level it has maintained since the central bank’s decision. July 2023 meeting.
The Fed is likely to delay cutting rates until late 2024, with most experts now planning the first rate cut for the central bank’s September or November meeting, FactSet data shows. This means consumers will likely continue to face higher costs for all types of loans, from credit cards to mortgages, even as the costs of goods and services remain high.
“The Fed has said repeatedly that inflation would be really difficult to control and is more than willing to keep rates high until inflation becomes more manageable,” Jacob Channel, senior economist at LendingTree, told CBS MoneyWatch. “I understand why people are concerned, and maybe a little upset, that the Fed isn’t eager to cut rates.”
But, he added, if the Fed cuts rates prematurely and inflation rises further, it could make the economic situation worse for many consumers and businesses.
When is the Fed meeting this week?
The Federal Reserve’s Open Market Committee announced its decision at 2 p.m. ET. Fed Chairman Jerome Powell will speak at a press conference at 2:30 p.m. to outline the central bank’s economic outlook and answer questions about its decision.
When will the Fed cut interest rates?
Although the Fed earlier this year planned three rate cuts in 2024Wall Street investors now predict just a single cut.
At the heart of the issue is stubborn inflation, which has risen this year due to rising housing and gasoline costs, defying the Fed’s efforts to control prices. Consumer prices in March rose 3.5% annually, from February increase of 3.2% and January increase of 3.1% year after year.
About half of economists forecast a cut at the Fed’s Sept. 18 meeting, while most forecast a cut at the Nov. 7 meeting. These cuts are likely to amount to a quarter percentage point each, rather than a juicier half percentage point cut, Channel noted.
“It is not surprising that investor expectations for future rate cuts have declined sharply,” Stephen J. Rich, CEO of Mutual of America Capital Management, said in an email. “Right now, we see the potential for two half percentage point value cuts this year.”
Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, also believes the Fed will have to keep rates higher for longer. It expects the Fed to cut its key short-term rate twice this year, likely starting in September, according to a research note.
How will the Fed’s decision affect your money?
Prepare for continued high borrowing costs, Channel said.
“In light of the meeting, we will probably have to get used to the average rate on a 30-year mortgage above 7% again,” he said. “Those 7% rates that people fear are probably going to continue.”
Credit card rates, which have reached recordsThey won’t fall either, he noted.
“Money borrowing will remain relatively expensive for some time,” Channel added. “We’re not going to wake up in August and 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 and yields above 5%, according to Ken Tumin, banking expert at DepositAccounts.com. Other savings vehicles, such as certificates of deposit, may also offer attractive rates.
