The Federal Reserve is about to make another interest rate decision. What are the odds of a cut?

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 cutting its benchmark interest rate, providing some relief to high financing costs.

Unfortunately for consumers, the Fed is expected to hold rates steady against a backdrop of stubbornly high inflation, which remains more than a percentage point above the central bank’s annualized target of around 2%.

Nearly all economists surveyed by financial data firm FactSet predict that monetary policymakers will keep the federal funds rate in a range of 5.25% to 5.5% – the highest level in 23 years, and where it has been since the July 2023 Fed meeting. Still, both consumers and investors will be watching for clues about the Fed’s outlook for rates.

Federal Reserve officials earlier this year anticipated three rate cuts, but persistently high inflation has clouded their timetable for reducing borrowing costs.

“Inflation is proving sticky in the near term and remains above the Federal Reserve’s 2% target,” Stephen J. Rich, CEO of Mutual of America Capital Management, said in an email. “This will likely keep the Fed on hold through the summer, although the consensus is that inflation will gradually ease through the rest of the year.”

The delay in lowering rates is hurting low- and middle-income consumers, who are facing hardship on two fronts, Rich noted: Inflation remains high, raising the costs of everything from food to rent, while borrowing costs are also rising. high, making them more expensive. to incur credit card debt or take out a loan.

Here’s what to expect from the next Fed meeting and beyond.

When will the Federal Reserve cut rates?

Many economists still think the Fed will cut rates sometime in 2024 — but not at the June 12 meeting.

According to FactSet, about 9 in 10 economists predict the Fed will also hold rates steady at its July 31 meeting. The first opportunity for some relief could come at the central bank meeting on September 18, with around half of economists planning the first rate cut of the year for that date.

On the other hand, most economists do not expect the Fed to raise rates, given that inflation has been steadily retreating since its recent peak of 9.1% in June 2022. In April, consumer prices were increasing at an annual rate of 3.4%. The Personal Consumption Index – the Fed’s preferred inflation indicator when making rate decisions – rose in April 2.7% compared to the previous year.

How many times is the Fed likely to cut rates in 2024?

Wall Street and consumers alike will be watching for clues from the Fed on whether the bank continues to forecast three rate cuts in 2024, which it has already done. nominated earlier this year. Some economists are already reducing their forecasts for the number of rate cuts they expect in 2024. For example, Solita Marcelli of UBS Global Wealth Management predicts two cuts this year, with the first coming in September.

The Fed will also release updated economic projections on Wednesday, which are expected to show it anticipates one or two rate cuts by the end of the year, down from three in March.

What is influencing the Fed’s interest rate decision?

Fed Chairman Jerome Powell has repeatedly said the central bank prefers to keep rates high until inflation falls closer to its 2% target, due to the risk that cuts too soon could fuel another round of price hikes. .

Although inflation has retreated from its 2022 highs, it has remained at an annual rate of around 3.4% to 3.5% so far in 2024, fueled in particular by higher housing costs. According to the Fed declaration following their May 1 meeting, this suggests “a lack of further progress” in defeating inflation.

The Labor Department is scheduled to release the May Consumer Price Index on Wednesday. Economists expect inflation last month to be 3.4%, or unchanged from April, according to FactSet.

But if inflation data shows further signs of improvement, it could help give policymakers the confidence to cut their benchmark rate within a few months.

How will the Fed’s decision impact mortgages and other loans?

If the Fed keeps rates unchanged, consumers will likely continue to pay more for mortgages, auto loans and credit card debt.

Mortgage rates are not set directly by the Fed, but its benchmark rate influences them. Without a rate cut on the horizon, mortgage rates could hover around 7% for a while, although that could fluctuate based on other economic factors, noted LendingTree senior economist Jacob Channel.

“It is becoming increasingly clear that the Fed is not going to cut interest rates anytime soon,” noted Matt Schulz, credit analyst at LendingTree, in an email. “It may be hurtful for those struggling with debt to hear this, but that is likely to be the sad reality in the coming months.”

Consumers with credit card debt should focus on paying down their balances or look into options like balance transfer cards, he noted.

If there’s a silver lining for consumers, it’s that high-interest savings accounts, certificates of deposit and other products continue to be available. Still, some banks have lowered their rates slightly in anticipation that the Fed will cut rates at some point this year, noted Ken Tumin, banking expert at DepositAccounts.com.

—With reporting from the Associated Press.