What's next for US interest rates? (2024)

The Federal Reserve left interest rates unchanged once again at its July meeting, marking the eighth consecutive time 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 2023, and which marks its highest level in 23 years.

While the Fed did not make any moves at its July meeting, it did say that "greater progress has been made in reducing inflation to its 2% target, a sign that the central bank is moving closer toward cutting its key interest rate for the first time in four years," said The Associated Press. It is possible a cut could come as early as September.

What will the Fed do next?

At its July meeting, Federal Reserve officials "hinted that recent progress in lowering inflation could enable them to cut interest rates soon," said The New York Times. Indeed, at a press conference following the meeting, Federal Reserve Chair Jerome Powell "suggested a rate cut could come in September, the Fed's next meeting," and that "he could see anything from zero cuts to several cuts later this year depending on the data."

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Although inflation remains higher than the Fed's target of 2%, signs indicate that "inflation continues to move in the right direction, clearing the way for the Fed to lower borrowing costs in the near future," said NPR. Further, the Fed is "also concerned that waiting too long to cut rates could needlessly weaken the job market," which could spur action.

Still, the Fed maintained its long-held line that "'it would not budge 'until it has gained greater confidence that inflation is moving sustainably toward 2%,'" said NBC News. "It's just a question of seeing more good data," Powell said.

When is the next interest rate decision?

The next Federal Reserve meeting is scheduled for Sept. 17-18. Powell said at a press conference following the July meeting that a "rate cut 'could be on the table' at its next meeting on Sept. 18," said The New York Times.

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.