What's next for US interest rates?

The Federal Reserve once again left interest rates unchanged at its March meeting, marking the fifth consecutive time that it has done so. For now, that leaves the central bank's benchmark interest rate between 5.25% and 5.50%, where it has remained since July, and which marks its highest level in 22 years.

While the Fed hasn't made any moves just yet in 2024, the central bank still expects to stick to its plan to slash rates three times this year, despite "recent warmer inflation numbers," said The New York Times. But first, said the Times, "officials are looking for more data showing cooling inflation to feel confident in cutting rates."

What will the Fed do next?

The Federal Reserve is seemingly sticking to its plan to cut rates three times this year, despite the recent higher inflation readings that "followed six months of steady slowdowns in price increases," said The Associated Press. As for when exactly those cuts may come, the Fed "is trying to keep its options open," said the Times, and Federal Reserve Chair Jerome Powell gave "very few hints about timing" following the March meeting.

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This uncertainty is likely because "Fed officials are facing the difficult task of balancing the risk of cutting too soon with the risk of cutting too late — both of which come with consequences," said CNN. If rates are cut too soon, it could "undo the progress the Fed has seen" toward its goal of bringing down inflation. On the other hand, if the Fed waits too long to cut rates, "it could fail to prevent the economy from sharply deteriorating."

Though Powell acknowledged at a press conference after the March meeting that the timing of rate cuts is "consequential," he indicated the Fed is comfortable waiting on the data to point the way. "Fortunately, with the economy growing, with the labor market strong and inflation coming down, we can approach that question carefully and let the data speak on that," Powell said.

When is the next interest rate decision?

The Federal Reserve next meets April 30-May 1. Rate cuts are expected to start coming at some point this year, but the Fed hasn't specified its intended timing, stating that it is waiting to assess the data to determine what is appropriate when. That said, "Wall Street is betting that the first rate cut will come in the summer," said CNN. 

How do interest rates affect the economy?

The Fed uses interest rates "like a gas pedal and a brake pedal," Forbes said. Lowering rates stimulates the economy; raising rates slows the economy down. The agency doesn't actually set the funds rate — banks do that — but "the Fed assumes that banks will use it as a floor in their own lending," Forbes added.

Rate changes usually take "at least 12 months" to have "widespread economic impact," Investopedia said. But the stock market reacts immediately. For example, when Fed chairman Jerome Powell signaled last year that further interest rate hikes were likely, the market went into a bit of a tailspin. The major indexes each fell more than 1%. Beyond stocks selling off, "Treasury yields rose and the dollar extended again after Powell's comments," said Reuters.

What do rate hikes mean for your wallet?

As Kiplinger said, "rate hikes are a blessing and a curse for consumers." When the Fed raises rates, consumers will pay higher interest rates on debt like credit cards, home equity lines of credit, and private student loans. However, on the flip side, savings rates also tend to increase. In the face of rate hikes, Kiplinger offers the following pieces of advice:

• Pay off any debt. Aim to pay off your debt before interest rates get any higher. While the impact might feel gradual initially, continued increases ultimately can make paying off debt more challenging.
• Lock in rates if you can. For those with a home equity line of credit, consider locking in a lower rate on all of a portion of your balance.
• Take advantage of top savings rates. Finally, take advantage of increasing savings rates. Kiplinger advises consumers that they'll usually find the best rates at online banks or other online financial institutions, including the ones in the table below.

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