TrendTrackersNews

At the conclusion of their first monetary policy meeting of 2024, Federal Reserve officials decided to keep the central bank’s benchmark interest rate at its current level, as predicted by many in the financial industry. However, they also indicated a desire to see further efforts made to combat inflation in 2021, leading investors to closely monitor when the Fed may begin to ease its grip on the American economy after two years.

The Federal Open Market Committee, which determines the interest rate for the Federal Reserve, announced on Wednesday that they will maintain the federal funds rate at 5.25% to 5.5%, continuing a series of pauses since July when rates were last increased. The central bank had previously predicted three rate hikes for this year.

The central bank stated that the committee does not anticipate lowering the target range until they are more confident that inflation is consistently reaching 2%.

It is expected that there will be a decrease in rates in March, as the next rate meeting is scheduled for March 19-20, according to financial data provider FactSet.

Jon Maier, the chief investment officer at ETF manager Global X, stated in an email after the rate decision that the Fed’s position sends a clear message that they are not prepared to declare victory yet.

Maier stated that there has been a shift in the market’s perception of when the rate cut will occur, causing expectations to be delayed beyond the original estimates.

Approximately 90% of economists are predicting a decrease in interest rates at the upcoming meeting of the central bank, taking place on April 30th and May 1st.

Fed announcement today

The Fed started boosting rates in March of 2021 in a bid to temper the hottest inflation in four decades. That policy is paying off as consumer prices cool and as the overall U.S. economy remains strong, with low unemployment and robust GDP growth. 

However, during a press conference on Wednesday afternoon, Federal Reserve Chairman Jerome Powell expressed a warning by stating that there is still a significant level of inflation and the future trajectory is uncertain.

“One thing we are considering is whether we have taken sufficient measures to control inflation,” he stated.

Powell further stated that the Federal Reserve is cognizant of the risks associated with delaying a rate reduction. He emphasized, “We are highly dedicated to avoiding such an error.”

However, a few economists noted that the Federal Reserve’s policy statement emphasized that interest rates are currently at a level that can control inflation, despite officials seeming to lower expectations for immediate cuts.

In an email, Brian Coulton, chief economist at Fitch Ratings, stated that the most recent statement from the FOMC officially eliminates the Fed’s inclination to tighten policies and solidifies the idea that they believe interest rates are restrictive enough. However, there appears to be some resistance towards the increasing market predictions of upcoming rate decreases.

The Federal Reserve has been increasing interest rates multiple times since the pandemic caused a downturn in the economy. This has led to increased expenses for individuals and companies seeking loans, leading to higher mortgage, car loan, and credit card debt fees. Lowering interest rates could potentially ease the burden for Americans who have delayed purchasing homes or cars due to the higher borrowing costs.

However, professionals caution against an early decision to decrease rates as it may lead to a resurgence of inflation.

The Federal Reserve’s interest rate in 2024 and how it will affect your finances.

The Federal Reserve’s choice to maintain rates at their current level suggests that the ability to borrow money at a lower cost is not expected to occur in the near future.

Recently, the stock market in the United States reached its peak due to the anticipation of a rate cut by the Federal Reserve. This would potentially lower the cost of borrowing for businesses and allow for growth and expansion. However, following the announcement of the Fed’s decision, the S&P 500 dropped 1.5% in afternoon trading.

According to Xander Snyder, a senior economist specializing in commercial real estate at First American, individuals with a variable rate loan tied to short-term interest rates will not see a decrease in their interest costs despite predictions of lower rates.

Even so,  to historic lows

The current mortgage rates have reached incredibly low levels in history.

In recent months, there has been a decrease in mortgage rates, currently standing at 6.7%. This is a significant decline from the peak of 8% in the past 20 years, according to information from Freddie Mac. Despite the Federal Reserve keeping rates stable last fall, there is a possibility for further fluctuations in mortgage rates, as pointed out by LendingTree economist Jacob Channel.

As of now, it is recommended that consumers focus on reducing their debt, taking into consideration the current cost of borrowing. This was stated by Greg McBride, the chief financial analyst at Bankrate.

“We will continue to experience a prolonged period of high interest rates, and declining rates will not provide relief,” he stated. “The burden of debt repayment will need to be shouldered.”

Aimee Picchi

Source: cbsnews.com