Federal Reserve Keeps Interest Rates Unchanged, But Suggests Rate Cut on the Horizon

The Federal Reserve’s Decision

The Federal Reserve has decided to hold interest rates steady, as broadly expected, but the consensus holds that rate cuts are coming in September.

FOMC Meeting Outcome

At the conclusion of the Federal Open Market Committee, aka FOMC, meetings Wednesday, the Fed confirmed what investors and analysts almost unanimously anticipated: Interest rates are staying put at the current 5.25% to 5.5% range.

Inflation and Rate Cuts

While inflation has showed signs of moving toward the Fed’s preferred rate of 2%, the committee wrote in a statement Wednesday that it would like to see “further progress” toward that objective before lowering rates.

“Inflation has eased notably over the past two years, but remains somewhat above our longer-running goal,” Fed Chair Jerome Powell said at a press conference Wednesday. “We’re not quite at that point yet.”

Impact on Consumers

For consumers fed up with the elevated cost of borrowing, the Fed’s decision Wednesday comes as bad news. According to Morning Consult, 68% of Americans say interest rates are too high. Many of them are cutting back spending on essential items and delaying major purchases like cars and homes as a result.

When Will the Fed Cut Interest Rates?

At a press conference Wednesday, Powell signaled that an interest rate cut is coming “as soon as the next meeting” if inflation continues cooling and the labor market remains stable.

The central bankers next gather for the FOMC in September. Analysts have been predicting that a rate cut at the September meeting is a given.

What Does the Fed’s Decision Mean for Your Wallet?

The Fed’s decision to hold rates steady means consumers must weather high interest rates for at least a little longer.

For folks who are primarily building their nest egg, that could be a good thing. Interest rates remaining steady mean larger yields on certificates of deposit, high-yield savings accounts and other similar accounts. On the other hand, borrowers will continue to face record-high mortgage and credit card payments.

Stock Market Implications

Lower interest rates also have implications for the stock market. According to the financial firm Morningstar, the two are closely related. Generally speaking, when interest rates are high, stocks are seen as riskier, and investors tend to allocate more of their portfolios into safer options such as bonds.