The Federal Reserve again left interest rates unchanged at its June meeting, the seventh consecutive time it has done so. As of now, the central bank's policy rate is between 5.25% and 5.50%, the highest it has been since July 2023 and the highest in 23 years.
At its June meeting, the Fed revised its initial plan to cut rates multiple times this year and now plans to cut rates just once by the end of the year.
What will the Fed do next?
The New York Times reported that Fed officials “project just one rate cut in 2024, down from an earlier forecast of three,” but Fed Chairman Jerome Powell suggested that this projection was not a firm plan. Instead, Powell suggested that the decision “depends on inflation slowing, but a cut could also come if the job market unexpectedly collapses.”
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But interest rate cuts could begin as soon as 2025. In the Fed's economic outlook summary released at its June meeting, “four rate cuts are expected next year, with the benchmark interest rate expected to fall to around 4.1% by the end of 2025,” CBS News reported.
“Any rate cuts that would have been made this year will happen next year,” Powell said. “There will be fewer cuts on average this year, but one more next year. By the end of 2025 and 2026, we'll be back to roughly where we were on schedule, just later.”
When is the next interest rate determination?
The next Federal Reserve meeting is scheduled for July 30-31. But a rate change is unlikely to come so soon: The Washington Post reports that “July is probably too early for the Fed to get a good look at inflation progress.” The next September meeting “could still be a close call, analysts say,” while the possibility of a rate cut remains for the December meeting, since “the November meeting falls during the week of the presidential election.”
How do interest rates affect the economy?
Forbes points out that the Fed uses interest rates “like a gas and brake pedal” — lowering them stimulates the economy, raising them slows it down. While the Fed doesn't actually set interest rates (banks do), Forbes adds that banks “assume that the Fed will use interest rates as a floor for their own lending.”
Investopedia says that interest rate changes usually take “at least 12 months” to have a “widespread economic impact.” But the stock market reacts immediately. For example, last year, when Fed Chairman Jerome Powell hinted at the possibility of further interest rate hikes, the market crashed, with each of the major stock indexes falling by more than 1%. Not only were stocks sold off, but “Treasury yields rose and the dollar strengthened again after Powell's comments,” Reuters reports.
What do rising interest rates mean for your wallet?
“Rising interest rates are both a blessing and a curse for consumers,” Kiplinger said. When the Fed raises interest rates, consumers end up paying higher interest rates on their credit cards, mortgages, private student loans and other debt. But on the flip side, savings rates also tend to rise. In the face of rising interest rates, Kiplinger offers this advice:
Pay off your debt. Aim to pay off your debt before interest rates rise any further. While the impact may be felt gradually at first, if interest rates continue to rise, it could ultimately become more difficult to pay off your debt. Lock in your interest rate if you can. If you have a home equity line of credit, consider locking in a lower interest rate on some or all of your balance. Take advantage of the best savings rates. Finally, take advantage of rising savings rates. Kiplinger advises consumers that the best interest rates will usually be found at online banks and other online financial institutions, including those in the table below.
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