Will the Federal Reserve lower interest rates? It’s a matter of when, not if, according to the central bank. But the Fed has indicated that consumers shouldn’t expect any cuts until at least the spring.
To combat ongoing inflation, it raised the federal funds rate 11 times between March 2022 and July 2023. After its December 2023 session, the Fed forecasted it would make three quarter-point cuts by the end of 2024 to lower the benchmark rate to 4.6%.
Prices have started to come down, but the group has signaled it wants to see more positive data before pulling the trigger.
At the first meeting of 2024, held Jan. 30 and 31, the Federal Open Market Committee (FOMC) held interest rates steady at a target range of 5.25 to 5.5%, the highest it’s been in more than 20 years.
The FOMC will have seven more opportunities to cut interest rates this year, starting with its next meeting on March 19 and 20.
Below, CNBC Select looks at when the Fed could lower interest rates, the factors it uses to consider changes and what consumers can do when rates come down.
When will the Fed cut interest rates?
The FOMC meets eight times a year to discuss whether to adjust the federal funds rate, a benchmark that governs overnight lending between commercial banks. Led by Federal Reserve Chair Jermone Powell, the group of 12 considers inflation, employment and the rate of borrowing in its decisions, among other economic factors.
The committee already convened on Jan. 30 and 31, when it decided not to change the rate. Here are the remaining dates the FOMC will meet in 2024.
March 19 to March 20, 2024Sept. 17 to Sept. 18, 2024
The chair of the Federal Reserve has said that while the committee agrees a rate cut this year would be appropriate, it’s unlikely to happen in March.
That pushes the timeline to the next meeting, which ends May 1.
What is the federal funds rate?
The Federal Reserve requires banks and other depository institutions to hold 10% of their deposits in reserve. Banks will loan each other money back and forth to stay as near to that threshold as possible without dipping below it.
The FOMC sets the interest rate the banks can charge each other, known as the federal funds rate. Banks, so they can continue to make a profit, then adjust the interest rates they charge consumers.
The fed fund rate has been 5.25% to 5.50% since July 2023. That’s the highest since January 2001, when it rocketed to 6.00% in the wake of the dot-com bubble burst.
When the FOMC raises the target range, it becomes more expensive for consumers to borrow money. Since the recent slew of hikes, for example, the average credit card interest rate soared from 16.34% in March 2022 to nearly 21% in January 2024.
That may sound bad, but it can help slow the economy and lower inflation.
When the Fed lowers the benchmark rate, it becomes easier to borrow. That sounds great, but it opens the door for a possible spike in inflation.
What you should do while you wait for interest rates to go down
It could be a while before rates drop, but there are still some things you can do to get ready.
Open a certificate of deposit
When the Fed lowers rates, annual percentage yields (APY) on savings accounts dip, too. But rates on CDs are locked in when you open the account and stay fixed even if APYs decline.
Read on: Banks with the best CD rates
A high-yield Ally Bank® CD with an 18-month term has a 4.50% APY, with no monthly fees or minimum deposit requirements. Two- and four-year CDs both have a 3.75% APY but savers can adjust their rate if it goes up for their term and deposit amount.
Ally Bank® CDs
Ally Bank® is a Member FDIC.
Annual Percentage Yield (APY)
Early withdrawal penalty fee
High Yield CDs and Raise Your Rate CDs have early withdrawal penalties that vary based on your CD term. With the No Penalty CD, withdraw all your money any time after the first 6 days following the date you funded the account and keep the interest earned with no penalty.
Prime your credit score
If you’ve been waiting for rates to go down to apply for a mortgage or personal loan, now’s the time to get your ducks in a row. Your credit score is one of the biggest factors lenders use to determine whether you’ll get approved and the rate you’ll be offered. A credit score of 620 is considered the baseline for a conventional mortgage, but if you boost your score to at least 750, you could qualify for the most competitive rates.
Make on-time payments in full. Payment history is the most important element of your credit score. (You’ll also avoid late fees and interest charges.)Request higher credit limits. A solid record of on-time payments or a bump in income is usually necessary, but if you can raise your credit limit and keep your balance the same, it ‘ll lower your credit utilization ratio, which accounts for 30% of your FICO® Score. (Just don’t think of the additional credit as a green light for spending more.)Hold off on new lines of credit. The application could require a hard inquiry that dings your credit and, if you’re approved, it will lower the average age of your accounts.
eCredable Lift® is a paid service that sends information about utility payments to TransUnion, one of the three major credit-reporting agencies. Utility companies aren’t typically included on credit reports, so on-time payments wouldn’t otherwise help you build credit.
For $9.95 a month, you can link up to eight accounts — including your phone and internet — and report up to 24 months of payment data. For $14.95 a month, eCredable LiftLocker™ adds budgeting tools, identity theft alerts and credit monitoring, among other benefits.
On Ecredable’s secure site
$9.95 per month for eCredable Lift®$14.95 per month for eCredable LiftLocker™
Credit report affected
Credit scoring model used
FICO® Score 8 (or newer) or VantageScore® 3 (or newer)
Results vary. See website for details.
*Experian Boost™ also adds household payments to your report, but it’s free and it works with Experian, rather than TransUnion. According to the company, users whose FICO Scores improve see an average increase of 13 points.
On Experian’s secure site
Average credit score increase
13 points, though results vary
Credit report affected
Credit scoring model used
Results will vary. See website for details.
What you should do when rates go down
Here are a few financial options to consider once the Fed does slash interest rates.
Refinance your mortgage
If you bought your home when rates were peaking in 2023, now would be a good time to refinance. After the Fed cuts the fed fund rate, mortgage rates should follow suit.
One of CNBC Select’s top picks for mortgage refinancing, Ally Bank offers fixed and adjustable rate terms with no application, origination, processing or underwriting fees. That can save you thousands. (Ally doesn’t offer refinancing in Hawaii, Nevada, New Hampshire or New York, however.)
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Fixed-rate, adjustable-rate and jumbo loans available
5/6 ARM, 7/6 ARM, 10/6 ARM
Refinance your student loans
Interest on student loans should also fall after the Fed makes cuts. Borrowers have felt the squeeze since the three-year moratorium on payments ended in October 2023.
SoFi offers terms of up to 20 years for refinancing student loans, with a 0.25% discount on your rate if you sign up for monthly autopay.
Read on: Best student loan refinance companies
Undergraduate and graduate students, parents, health professionals
$5,000 minimum (or up to state); maximum up to cost of attendance
Range from 5 to 15 years; up to 20 years for refinancing loans
Forbearance options like unemployment protection available
Offer student loan refinancing?
Pay off high-interest credit cards
Once rates go down, the annual percentage rate (APR) on your credit cards will likely drop, as well, making it easier to polish off those balances.
So, prioritize making sizeable payments now before rates go up again later.
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The Federal Reserve has seven more chances to cut rates in 2024. When it happens, all kinds of borrowing will be easier for the average American. But there are several smart money moves you can make before then, too
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*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.