Expect Higher Interest Rates Through the End of 2024. Fed Blames ‘Lack of Progress’ on Inflation

Key takeaways

• The Fed held interest rates steady on Wednesday, saying it wants “greater confidence” that inflation is moving sustainably toward the central bank’s 2% goal.
• Inflation has been higher than expected for the first three months of 2024, squashing hopes that it had been tamed enough to lower interest rates.
• Even if the Fed cuts rates later in the year, expect credit card interest and mortgage rates to remain high through the end of 2024.
• With APYs already on the decline for longer term CDs and some high-yield savings accounts, now is the time to lock in higher savings rates.

Federal Reserve Chairman Jerome Powell had some sobering words for those anxiously anticipating rate cuts in 2024: “The path forward is uncertain.”

The Fed on Wednesday decided to hold the federal funds rate at a target range of 5.25% to 5.50% for the sixth straight time after three months of hotter-than-expected inflation reports. Inflation currently sits at 3.5% year over year, according to the Consumer Price Index’s April 10 report.

At previous meetings this year, Powell said the committee needed more data to make a decision and stuck to its forecast of three rate cuts “at some point this year.” But on Wednesday, Powell noted that a “lack of progress” on inflation in the first quarter could delay those cuts.

“Gaining greater confidence will take longer than previously expected,” Powell said during a press conference at the conclusion of the April/May Federal Open Market Committee meeting.

Moving inflation sustainably toward the central bank’s goal of 2% would likely require more than a month or two of lower inflation reports, which pretty much extinguishes any hopes for interest rate cuts by this summer.

However, Powell still sounded optimistic, noting that while inflation has ticked up recently, the committee’s “longer-term inflation expectations appear to remain well anchored.”

With just five meetings left this year — in June, July, September, November and December — it seems unlikely the Fed will make the three cuts it predicted in December 2023, if any at all. And if inflation continues its current upward trend, the Fed could instead raise interest rates even higher.

Why hasn’t the Fed lowered interest rates?

Under pressure to keep inflation in check and maintain economic growth, the Fed is tasked with striking the right balance. Raising interest rates is one of the primary strategies the Fed can use to help control inflation. 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.

After the Fed raised interest rates 11 times between March 2022 and July 2023, inflation initially responded, falling from its high of 9.1% in June 2022 to 3% one year later. But inflation has crept back closer to 4%, above the Fed’s target rate of 2%.

Many experts expect the Fed will begin dropping rates by the end of 2024, so long as inflationary pressures continue to ease.

How the Fed’s interest rate decision affects your money

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.

Mortgages

If you’re looking to buy a home, experts don’t expect mortgage rates to cool until the Fed signals it plans to start lowering rates. And even then, it can take months for mortgage rates to see significant declines. Either way, don’t expect mortgage rates to drop back down to pandemic lows. If you’re ready to buy a home, it’s better to focus on the factors you can control, like finding a house within your budget and exploring all of your financing options.

Credit cards

Expect credit card annual percentage rates to remain high through at least the end of the year. The average credit card interest rate dipped slightly recently and stand at 20.66% as of May 1, according to CNET’s sister site Bankrate, which is still high. If you’re carrying high-interest credit card debt, create a debt repayment strategy to pay down your balance quickly and avoid paying interest charges. Consider a balance transfer or debt consolidation loan or another to help rein in what you’re paying in interest and give yourself more time to pay down your balance.

Savings and CDs

On the other hand, you can earn high interest on your savings right now. Savings rates have come down slightly from their highs in 2023, but some high-yield savings accounts and CDs still offer annual percentage yields around 5% or higher. Rates should stay high all year, but expect small dips when the Fed signals a rate cut is likely.