Cash News
The Federal Open Market Committee (FOMC) has two scheduled meetings on the calendar for the remainder of 2024. Each time the committee meets, it could mean a change to the federal funds rate.
In September, the Federal Reserve implemented a 50-basis-point cut to the federal funds rate — the first cut it’s made in four years. A change in this rate not only impacts financial institutions but also your bottom line.
With November’s meeting set to take place this week, Americans are waiting with anticipation to learn whether the Fed will lower its target rate again.
What’s the likelihood of another rate reduction this year? Here’s what the experts think.
The federal funds rate is the interest rate at which depository institutions charge each other for ultra-short-term loans, usually overnight. It’s expressed as a range, and financial institutions negotiate a specific rate within that range.
The federal funds rate plays a key role in the Federal Reserve’s management of inflation. When inflation is too high, the Fed typically raises its rate to reduce consumer spending and slow economic activity. Conversely, the Fed may lower its rate to stimulate economic activity and growth.
The federal funds rate doesn’t directly affect the rates offered by individual banks, but it does have an influence. When the Fed’s target rate increases or decreases, rates for high-yield savings accounts, certificates of deposit (CDs), money market accounts, credit cards, home loans, and other banking products generally follow suit.
That means when the Fed’s rate is high, it can be a good time to deposit money in a bank account and earn more interest. When it’s low, it’s a good time to borrow money or refinance at a lower interest rate.
Read more: How do banks set their savings account interest rates?
After inflation peaked in June 2022, the Fed implemented a series of rate hikes in an effort to tame it. Then the Fed held rates steady from August 2023 to September 2024.
In its September meeting, the Fed lowered the federal funds rate by 50 basis points, stating: “in considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.”
Here’s a closer look at how rates have changed over time alongside the federal funds rate:
Read more: A look at the federal funds rate over the past 50 years
The Fed’s job is to carefully monitor the economy and maintain stability. During each meeting, it may adjust its target rate and overall monetary policy based on what the economy needs to continue running smoothly. However, it doesn’t necessarily announce its plans ahead of time.
Economic experts monitor the economy’s health closely and formulate their own ideas about the Fed’s next move based on the data they have available.
“Given our current trajectory, the Federal Reserve will likely continue easing interest rates gradually into 2025,” said David Becker, chairman and CEO at First Internet Bank. However, he added, rate cuts won’t occur at a pace that brings us back to the historic lows experienced in recent years. “I expect a cautious approach, with perhaps one or two quarter-point reductions before the end of the year to establish a solid economic foundation,” he said.
Becker also noted that the more significant economic impact may not come from rate cuts themselves, “but from the confidence these changes inspire across various business sectors and consumer spending — particularly in small business growth and housing, where demand has been pent up.” He explained that while rates may decrease moderately, economic indicators suggest a strong year ahead, especially if we see stable rate reductions into 2025.
Other experts echo the sentiment that more rate cuts are on the horizon, but with more modest reductions compared to November.
“This Fed has exercised great caution over the last few years — both in raising and in cutting rates — and I believe that philosophy will continue,” said Robert R. Johnson, chairman and CEO of Economic Index Associates and a professor of finance at the Heider College of Business at Creighton University. “While I believe the rate cutting will continue, we should expect that these rate cuts will be in 25-point increments.”
Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards
Regardless of whether the federal funds rate changes, it’s a good time to evaluate your banking products and potentially make some savvy money moves that could pay off later.
Right now, the national average savings interest rate is well below 1%. But many banks and credit unions offer high-yield savings accounts with APYs as high as 5% or more — at least, for now. If your interest rate isn’t competitive, you could be leaving money on the table.
Take stock of your current deposit accounts, shop around, and see if you’re getting the best rates possible. If you’re not, it could be time to switch banks or open up a new type of account.
See our picks for the 10 best high-yield savings accounts>>
One of the major perks of a CD is that it offers a fixed interest rate for the entire term. This allows you to lock in a high APY ahead of any potential rate cuts.
Keep in mind that if you make a withdrawal before your CD reaches maturity, you’ll be subject to an early withdrawal penalty. So be sure to carefully consider your savings goals before tying up your money in a CD. If you’re saving for a longer-term goal (six months to two years), opening a CD and securing a higher rate could help you reach it even faster.
See our list of the best CD rates on the market>>
If you’re preparing for a big-ticket purchase (like a car or house), applying for a new loan now could potentially lock you into a higher interest rate.
It’s impossible to predict with certainty how the Fed will change rates — if at all. However, if Fed officials do decide to cut rates in the near future, lenders will likely reduce mortgage rates as well. So it could pay to hold off.