Key takeaways
- The Fed kept interest rates steady Wednesday, saying it wants “greater confidence” that inflation is moving sustainably toward the central bank's 2% target.
- Inflation was higher than expected in the first three months of 2024, dashing hopes that it had been contained enough to bring down interest rates.
- Even if the Fed cuts rates later in the year, credit card interest rates and mortgage rates are expected to remain high through the end of 2024.
- With APYs already falling for longer-term CDs and some high-yield savings accounts, now is the time to secure higher savings rates.
Federal Reserve Chairman Jerome Powell had some sobering words for those looking forward to rate cuts in 2024: “The path forward is uncertain. »
The Fed decided on Wednesday to maintain the federal funds rate in a target range of 5.25% to 5.50% for the sixth consecutive time after three months of inflation reports hotter than expected. Inflation currently stands at 3.5% year-on-year, according to the consumer price index. April 10 report.
In previous meetings this year, Powell said the committee needed more data to make a decision and stuck to his prediction of three rate cuts “at some point this year.” But on Wednesday, Powell noted that a “lack of progress” on inflation in the first quarter could delay those cuts.
“Gaining greater confidence will take longer than expected,” Powell said at a news conference following the April/May meeting of the Federal Open Market Committee.
To bring inflation sustainably toward the central bank's 2% target would likely take more than a month or two of reports of lower inflation, which virtually wipes out any hope of a rate cut. interest by this summer.
However, Powell still seemed optimistic, noting that even though inflation has risen recently, the committee's “long-term inflation expectations appear to remain well anchored.”
With only five meetings left this year – in June, July, September, November and December – it seems unlikely that the Fed will make the three cuts it planned in December 2023, if at all. And if inflation continues its current upward trend, the Fed could raise interest rates even further.
Why hasn't the Fed lowered interest rates?
Under pressure to control inflation and maintain economic growth, the Fed is tasked with striking the right balance. Raising interest rates is one of the main strategies the Fed can use to help control inflation. But leaving high interest rates in place for too long could dampen the economy, as employers stop hiring and consumers stop spending.
After the Fed raised interest rates 11 times between March 2022 and July 2023, inflation initially responded, falling from its peak of 9.1% in June 2022 to 3% a year later . But inflation has returned closer to 4%, above the Fed's 2% target rate.
Many experts expect the Fed to begin cutting rates by the end of 2024, provided inflationary pressures continue to ease.
How the Fed's Interest Rate Decision Affects Your Money
Overall, high interest rates are unlikely to improve any time soon. This means you can expect borrowing to remain high, while savings rates will also remain high.
Mortgages
If You're Looking to Buy a Home, Experts Don't Expect a Mortgage rates calm down until the Fed signals its intention to start lowering rates. Even then, it may take months for mortgage rates to see a significant decline. Either way, don't expect mortgage rates to fall back to pandemic lows. If you are ready to buy a house, you better focus on factors you can controllike finding a home within your budget and exploring all your financing options.
Credit card
Expect a credit card annual percentage rates remain high at least until the end of the year. The average credit card interest rate has fallen slightly recently and stood at 20.66% as of May 1, according to CNET's sister site. The bank rate, which is still high. If you have high interest credit card debt, create a debt repayment strategy to pay off your balance quickly and avoid paying interest charges. Consider a balance transfer Or debt consolidation loan or another to help you control what you pay in interest and give you more time to pay off your balance.
Savings and CD
On the other hand, you can earn high interest on your savings right now. Savings rates have fallen slightly from their 2023 highs, but some high yield savings accounts And CD always offers annual percentage returns about 5% or more. Rates are expected to remain high throughout the year, but expect slight declines when the Fed signals a rate cut is likely.