The Federal Reserve maintains a stable interest rate, which will affect your finances.
below the Fed’s 2% target.
The Federal Reserve Board announced that they will be maintaining the current benchmark interest rate, a decision that was anticipated by economists due to recent inflation reports which revealed that prices remain below the Fed’s goal of 2%.
growing at a quicker rate
The Federal Reserve desires a lower unemployment rate, however, many officials are still anticipating three decreases in interest rates in the latter part of 2024.
On Wednesday, policymakers stated that although inflation is decreasing, they do not anticipate making any rate cuts until they are certain that inflation is on track to reach its goal of 2%.
On Wednesday, the Federal Reserve announced that it will keep the federal funds rate between 5.25% and 5.5%. However, the majority of the Federal Open Market Committee predicts three rate cuts in 2024, which aligns with the bank’s previous forecast for this year. This information was reported in the Fed’s Summary of Economic Conditions.
In comparison to January’s 3.1% rise, there was a 3.2% increase in rose on a yearly basis. Even with this recent growth, Powell expressed confidence that inflation will eventually decrease to the bank’s aim of 2%. However, he reiterated that the Fed is ready to maintain current interest rates until there is more proof that inflation is diminishing.
“It is our belief that our policy rate has reached its highest point for this period of tightening,” stated the source. The Federal Reserve “will initiate a decrease in policy restraint at some point during this year.”
The Federal Reserve predicts that the rate of inflation in 2024 will decrease to 2.4%, followed by a further decline to 2.2% the following year.
Possible rewording: The effect of the Federal Reserve’s interest rate decision on stock markets.
Although the Fed was widely expected to leave the federal funds rate unchanged, stocks jumped after the announcement as investors cheered the bank’s outlook for three cuts in 2024. The S&P 500 gained 0.7% in afternoon trading, while the Dow Jones Industrial Average jumped about 1%.
Chris Zaccarelli, the chief investment officer at Independent Advisor Alliance, stated via email that investors were concerned about how the latest inflation figures, which were higher than anticipated, might lead to the Fed changing their forecast of three reductions for this year. However, those fears turned out to be unnecessary.
He stated, “In summary, this press conference implies that the markets have permission to continue rising, as the phrase ‘no news is good news’ suggests.”
When can we expect the Federal Reserve to decrease interest rates?
During the press conference on Wednesday, Powell refused to estimate when the Fed will start decreasing interest rates. However, according to the bank’s economic projection, the median federal funds rate is expected to be 4.6% by the end of the year.
According to experts, it is possible that Americans will have to wait until the Federal Reserve’s June meeting, or possibly even longer, for the first decrease in interest rates since March 2020. This initial rate cut occurred when the pandemic caused the economy to shut down and the central bank reduced rates in an attempt to stimulate spending.
According to a report by Kathy Bostjancic, chief economist at Nationwide, there is a possibility of a rate cut in June, but it is becoming more likely that the Fed will delay the beginning of its easing process until July.
The expert predicts that the Fed will decrease rates three times, resulting in a decrease of 0.75% and bringing the target rate down to 4.5% to 4.75% by the end of the year.
The effect of the 2024 Federal interest rate on your finances.
The Federal Reserve’s decision to maintain rates means that borrowing expenses will remain elevated, affecting various areas such as credit card interest rates and financing for buying cars or properties.
According to LendingTree credit analyst Matt Schulz, the average annual percentage rate (APR) for a new credit card is currently at 24.66%. In the last 25 months, the APR has increased 24 out of 25 times, with March being the most recent. Schulz also noted that there may be additional APR increases following today’s announcement for some credit cards.
Schulz stated that they anticipate small increments, unless there is significantly negative economic news. However, even the slightest uptick would be unwelcome after two consecutive years of upward trends.
Good news for buyers: there are great options for high-interest savings accounts and CDs. According to DepositAccounts.com’s banking specialist Ken Tumin, some CDs are currently providing rates as high as 5%.
Despite this, certain banks are reducing their rates in preparation for a potential cut by the Federal Reserve later this year, as well as the belief that the central bank will not make any further increases until 2024, he stated.
Aimee Picchi
Source: cbsnews.com