Federal Reserve officials recently announced that they will be leaving the central bank’s benchmark interest rate unchanged, a decision that was largely expected by economists. This decision comes after recent inflation data showed that prices are still increasing at a faster pace than the Fed would like. However, most officials are predicting three rate cuts later in 2024. Policymakers stated that while inflation is decreasing, they do not expect to cut rates until they are confident that inflation is moving towards its 2% goal. The Fed is maintaining the federal funds rate in a range of 5.25% to 5.5%.
Many consumers are eager for relief from high borrowing costs, which have been the result of the Fed’s 11 interest rate hikes since early 2022. While inflation is cooling down, it is still slightly above 3% on an annual basis, higher than the Fed’s goal of 2%. This has prompted the Fed to pause any move to ease rates. Chair Jerome Powell pointed to persistent inflation in January and February as the reason for holding rates steady, emphasizing the need to avoid cutting rates prematurely and risking a resurgence of inflation.
Despite the recent increase in inflation in February to 3.2%, Powell expressed confidence that inflation will eventually recede to the bank’s 2% goal. He stated that the Fed is prepared to hold the line on rates until there is more evidence that inflation is fading. Fed officials are forecasting that inflation in 2024 will decline to 2.4%, followed by a dip to 2.2% in the next year. The impact of the Fed’s rate decision on stocks was positive, with stocks jumping after the announcement as investors welcomed the bank’s outlook for three rate cuts in 2024.
At a press conference following the Fed’s announcement, Powell declined to forecast when the Fed might begin cutting rates. The bank’s economic outlook predicts the median federal funds rate to be 4.6% at year-end. Experts suggest that Americans may have to wait until the Fed’s June meeting, or even later, for the first rate cut since March 2020. The Fed is likely to cut rates three times for a total of three-quarters of a percentage point, bringing the target rate to 4.5% to 4.75% by year-end.
With the Fed keeping rates unchanged, borrowing costs will remain high, impacting everything from credit card rates to loans for auto purchases or real estate. The average APR on a new credit card is currently 24.66%, with rates having increased for 24 out of the last 25 months. While some high-interest savings accounts and CDs are offering rates as high as 5%, some banks are cutting their rates in anticipation of a Fed cut later this year. Overall, the Fed’s decision to leave interest rates unchanged will have a significant impact on consumers and the economy in the coming months.
