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Fed Won’t Cut Interest Rates Until Inflation Approaches 2%. Here’s What That Means for Your Money

Borrowers shouldn’t expect relief quickly, but savers should take action now.

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Key takeaways

  • The Fed tempers expectations for interest rate cuts in early 2024. 
  • Mortgage rates have seen a slow decline, but expect credit card APRs and loan interest rates to remain high through the first half of the year.
  • With APYs already on the decline for longer term CDs, now is the time to lock in higher savings rates.

The Federal Reserve is preaching patience as it held interest rates at a target range 5.25% to 5.50% for the fourth straight time since putting a pause on them in July 2023. 

The Fed left interest rates alone at its first meeting of 2024. The central bank continues to monitor inflation, which has eased over the past year but is still above the goal of 2%, said Chairman Jerome Powell at a press conference following the Federal Open Market Committee’s first meeting of 2024.

“The lower inflation readings over the second half of last year are welcome,” he said. “But we will need to see continuing evidence to build confidence that inflation is moving down sustainably toward our goal.”

The Fed indicated that it’s “flexible” on timing for a potential rate cut, but Powell emphasized that the Fed wants to see “continuing evidence” of inflation easing. That could signal the Fed needs more time to decide than at the next scheduled meeting in March.

Considering the Fed was blamed for acting too slowly to curb soaring inflation starting in 2021, it shouldn’t come as a great surprise that it wants to be sure the specter of inflation has been exorcized.

“They don’t want to risk cutting rates too soon and having to then reverse course very quickly,” said Gregory Heym, chief economist at real estate service company Brown Harris Stevens.

So far the economy appears to be approaching a “soft landing,” with the Fed raising interest rates enough to combat inflation without sending the economy into a recession. But leaving high interest rates in place for too long could create a drag on the economy as employers pull back on hiring and consumers stop spending.

So could the Federal Reserve get the proof it needs and lower interest rates at its March meeting? Can borrowers and debt holders finally get some relief on interest costs? Should savers lock in higher rates before the bottom falls out on CDs?

Maybe. Definitely maybe.

Savings and CD rates are changing rapidly across banks and accounts. Experts recommend comparing rates before opening an account to get the best APY possible. Enter your information below to get CNET’s partners’ best rate for your area.

What did the Fed do about interest rates?

The Federal Reserve announced it’s leaving the federal funds rate unchanged at its January meeting. That keeps the rate at 5.25% to 5.50% until its next meeting on March 19, if not longer. 

Under pressure to keep inflation in check and maintain economic growth, the Fed is tasked with striking the right balance. No one wants permanently high prices, but no one wants endless interest rate hikes either, which have been punishing for borrowers and debt holders. 

To tame inflation, the central bank has carried out a series of rate increases since early 2022. But the Fed has taken a breather from its aggressive rate-hike policy since July and indicated at its December meeting that multiple cuts could be coming in 2024. Still, the Fed’s ultimate goal is to bring inflation down to 2%, and December’s inflation data still showed consumer prices growing by 3.4% year over year.

The Fed’s monetary policy has a strong influence over financial markets -- and a direct impact on your wallet. Here’s how high rates could affect your financial goals heading into the new year.

What’s next for the Fed in 2024?

Most experts agree that rate hikes are over for now, but the inflation data in the coming months will help determine the Fed’s next move.

Experts expect the Fed will begin dropping rates at some point in 2024, but not right away. “The current data points to a resilient economy, and the Fed is unlikely to cut rates in early 2024 while inflation still remains above the 2% target,” said Frank Lietke, executive director and president at Ally Invest Securities.

The Fed also acknowledges that rate cuts are likely this year. “If the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be 4.6 percent at the end of 2024,” Powell said after the Dec. 2023 meeting. 

That doesn’t mean rate hikes are off the table entirely, though. The Fed has built room for economic uncertainty into its plan.

Overall, it’s unlikely we’ll see relief from high interest rates any time soon. That means you can expect borrowing to remain high, while savings rates will also stay elevated.

Mortgage rates may see relief, but not right away

Average mortgage rates have been declining slowly since reaching nearly 8% last October. And if Fed rate cuts are on the horizon, that could spell good news for prospective homeowners.

Although the Federal Reserve doesn’t directly set mortgage rates, they are affected by the central bank’s decisions. Until the Fed signals it plans to start lowering rates -- a move that likely won’t happen until later in 2024 -- experts don’t expect mortgage rates to cool. And even then, it can take months for rates to see significant declines, and are unlikely to drop to pandemic lows. 

Keep in mind that it’s normal to see mortgage rates fluctuate from week to week, and the rate changes you may see in the coming weeks may be temporary.

Consider a home below your budget to account for higher interest. More importantly, take a look at your debt-to-income ratio and credit score, which can directly affect the mortgage rate offered to you by a lender. 

Carrying credit card debt will remain expensive in 2024

Just like mortgage rates, credit card interest rates will also remain high. The average credit card interest rate is 20.74% as of Jan. 31, according to Bankrate. The rate has remained the nearly same since October, but some issuers have even higher rates. As long as the federal funds rate remains high, banks are likely to keep credit card annual percentage rates high for borrowers. When APRs are high, you’ll pay more in interest and potential late or penalty fees if your card has a balance.

If you’re carrying high-interest credit card debt, aim to pay down your balance quickly to avoid interest from pushing you further into debt. Explore strategies for paying off credit card debt, such as using a balance transfer card, debt consolidation loan or cutting expenses temporarily to put more toward paying off the balance.

If you currently have a high rate on loans or other accounts, you may be able to refinance your debt at a lower rate closer to the middle of the year, said Lietke.

Expect savings and CD rates to stay competitive

If you’re setting aside money for savings goals, you can earn high interest on your savings right now. Many high-yield savings accounts we track offer APYs above 5%. Many of the best CDs offer rates between 4% and 5% APY.

Over the past year, interest rates for these low-risk savings accounts have steadily increased. But with the Fed pausing rate hikes, banks may not increase rates as frequently for savings and CD accounts. However, experts believe that rates will remain high until the Fed signals it may start dropping the federal funds rate.

Locking in a long-term CD, like a three- or five-year option, lets you earn a fixed interest rate on your savings, so even if rates drop next year as expected, your rate will remain the same. If you want to keep your savings more flexible, short-term CDs and high-yield savings accounts currently offer higher rates than most long-term CDs. For now, unless there are major changes to economic data, short-term CDs and high-yield savings accounts won’t see big changes until early summer of 2024, said Patrick Marcinko, a certified financial planner.

Dashia is a staff writer for CNET Money who covers all angles of personal finance, including credit cards and banking. From reviews to news coverage, she aims to help readers make more informed decisions about their money. Dashia was previously a staff writer at NextAdvisor, where she covered credit cards, taxes, banking B2B payments. She has also written about safety, home automation, technology and fintech.
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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