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Don’t Expect Interest Rate Cuts Tomorrow. But What About July?

Experts are split on when the Fed might cut interest rates this year. Here how tomorrow's vote will affect your credit card debt and savings.

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Let’s dispel this fantasy first: The Fed will not lower interest rates at tomorrow’s meeting. 

At least, that’s the loud-and-clear message from experts, including members of the Federal Reserve. The central bank is likely to hold interest rates steady again as it waits to see if inflation abates this summer.

The Fed has paused the federal funds rate at a target range of 5.25% to 5.5% since last summer after raising rates 11 times to slow the economy. Inflation eventually dropped from a high of 9.1% to 3%, where it’s been hovering for a while and still above the Fed’s target rate of 2%. 

If inflation consistently trended downward, the Fed would be able to start decreasing the cost of borrowing by lowering interest rates. So, if not June, when, if at all, can we expect rate cuts in 2024? And how could potential cuts affect your money? 

Here’s when experts expect the Fed to cut rates

While many believe the Fed will wait until September, it is premature to overlook July.
We expect the Fed to begin to reduce rates in July.
I think the Fed will cut interest rates at either the November meeting or the December meeting.
We expect slower growth and inflation in the months ahead, which should provide the Fed with sufficient comfort in reaching its 2% inflation target to begin cutting rates in December.

What the Fed is looking for before lowering rates

Though experts may disagree on exactly when the central bank will cut rates, Fed Chair Jerome Powell has said the Federal Open Market Committee is looking for a few clear signals before it makes any moves. The Fed is tasked with keeping both inflation and unemployment low. Inflation cooled last month for the first time this year. 

However, even though unemployment rose slightly to 4%, the Bureau of Labor Statistics reported employers also added 272,000 jobs, defying expectations of a cooling labor market.

May’s unexpectedly hot jobs report “should exterminate any hopes of a rate cut this year,” University of Central Florida economist Sean Snaith said in an email.

Other factors can influence the Fed’s decision-making process, like the US economy’s overall health. Plus, Fed members can’t really ignore that event coming up in November.

“I don’t think the conditions for cutting rates will be satisfied until late this year,” said Robert Fry, chief economist at Robert Fry Economics. “If the Fed cuts rates before the election without the conditions being met, the move will look very political and will damage the Fed’s credibility.”

What should we expect at tomorrow’s meeting?

Expect caution. The monthly Consumer Price Index report, which tracks changes in inflation, comes out tomorrow morning. An unexpected inflation drop or hike would likely not affect the FOMC vote, but it could influence Powell’s post-meeting press conference. After the last two meetings, his sobering notes led some to believe that interest rate cuts may be off the table in 2024. 

If Powell gives a more positive impression that the Fed still intends to lower the federal funds rate this year, markets could react in anticipation of rate cuts.

With the remaining meetings scheduled in July, September, November and December, and inflation hanging on, the window for rate cuts in 2024 is quickly closing.

Why hasn’t the Fed lowered interest rates yet?

Unexpectedly high inflation numbers during the first quarter of this year prompted the Fed to retract its earlier predictions of multiple rate cuts. 

The most recent CPI report showed inflation had slightly cooled. But Fed members have indicated that one good report isn’t enough to change their minds about lowering the federal funds rate.

“We did get a welcome CPI report, but I think it’s a little too soon to determine where inflation necessarily is going,” Loretta Mester, CEO of the Federal Reserve Bank of Cleveland, said during a keynote presentation and panel at the Financial Markets Conference on May 21. “I do think we’re going to have inflation come down, but I do think it’s going to take longer than I originally thought it would.”

However, there’s a lot of data scheduled to be released between now and the July 30-31 meeting, according to Larry Adam, chief investment officer at Raymond James. That includes another CPI report, another BLS report on the employment situation and two Personal Consumption Expenditures Price Index reports -- the Fed’s preferred measure of inflation.

Adam noted in a weekly newsletter column that all of this data could potentially point to cooling inflation and a weakening job market. Combined with slower consumer spending, the news could prompt the Fed to cut rates earlier than expected.

How will the Fed’s decision affect your money?

Interest rates are the highest they’ve been in over 20 years, and three years of inflated prices are hurting our ability to save and afford everyday goods. Don’t wait for next week’s meeting to make financial decisions. The time to act is now.

Credit cards

If you’re carrying a credit card balance, expect your annual percentage rates to remain high through the end of the year. You should be doing everything you can to pay off your debt regardless of what the Fed does, particularly since any cuts won’t drastically affect your interest rate. If you’re able, consider using a balance transfer to take advantage of a lower introductory rate and pay down as much of your balance as you can during this period. You might also apply for a debt consolidation loan, which typically offers lower interest rates than credit cards, to consolidate your debt and help manage your payments.

Mortgages

If you were waiting for rates to drop to buy a home, don’t expect major relief anytime soon. Even if the Fed cuts rates this year, you shouldn’t expect a return to pandemic-level interest rates. But this expert advice on how to better afford a mortgage right now could help. 

Savings

For now, you can expect to keep earning a high rate of return on your savings until the Fed signals it’s nearing its first rate drop. Although banks have lowered their savings rates from the record highs of last year, you can still lock in annual percentage yields of 5% or more on your money. Online banks tend to offer the highest rates on high-yield savings accounts and CDs. But you might also check out offers at your local credit union.

Everyday spending

Even if inflation continues to cool, the cost of living will likely remain high for the short term. But there are signs that some retailers are finally having to lower prices in response to slowing consumer demand -- Target announced it’s slashing prices on 5,000 items this summer -- so look for the sales and ways you can minimize your spending on everyday essentials.

We’ll update you tomorrow when the CPI report is released, the FOMC meeting wraps up and the Fed makes its next rate decision.

Tiffany Wendeln Connors is a senior editor for CNET Money with a focus on credit cards. Previously, she covered personal finance topics as a writer and editor at The Penny Hoarder. She is passionate about helping people make the best money decisions for themselves and their families. She graduated from Bowling Green State University with a bachelor's degree in journalism and has been a writer and editor for publications including the New York Post, Women's Running magazine and Soap Opera Digest. When she isn't working, you can find her enjoying life in St. Petersburg, Florida, with her husband, daughter and a very needy dog.
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