The Federal Reserve voted to hold interest rates steady at their current range of 5.25 to 5.50 percent, a 23-year high during its July 2024 meeting, but hinted a single cut is likely before the end of the year, especially if unemployment continues to increase. 

Interest rates have been at their current levels now for more than a year. Not since the 1980s have officials lifted interest rates a whopping 5.25 percentage points in the span of just a year and a half.

That means Americans will keep paying higher mortgage, credit card, auto loan, and other higher interest rates for the foreseeable future, but also continue to benefit from higher savings account yields.

The Fed’s decision to leave interest rates as is comes after the Consumer Price Index (CPI) report revealed inflation is currently half a percentage point above Fed officials’ 2 percent target — down from a peak of 7.1 percent in 2022. 

In a statement, the Fed said: “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

“By holding off on cutting interest rates today, the Federal Open Market Committee is betting the labor market is strong enough to wait until the fall for confirmation that inflation is returning to 2 percent,” says Nick Bunker, economic research director for the Indeed Hiring Lab.

The Fed’s July 2024 Decision

Fed Chair Jerome Powell shared during a press conference following the Fed’s announcement that officials debated cutting interest rates at their July 30-31 gathering but “a strong majority” favored continuing to keep interest rates steady. The decision to leave rates alone was unanimous. However, he added that rate cuts could be “on the table as soon as the next meeting in September.”

“We’re getting closer to the point at which it’ll be appropriate to reduce our policy rate, but we’re not quite at that point,” Powell said. “If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.”

At the Fed’s June 2024 meeting, the Fed revised its outlook for rate cuts from three to just one in 2024. But at its July 2024 meeting, the Fed made it clear it has begun to shift its focus to jobs, not just inflation.

The increased attention on jobs comes as unemployment is climbing, topping 4.1 percent for the first time since November 2021 in June 2024, up from a historically low level of 3.7 percent at the start of the year, data from the Bureau of Labor Statistics shows. At the same time, job gains have slowed, with employers creating almost 400,000 fewer jobs so far in 2024 than the year before. This could be a reason enough for the Fed to begin lowering interest rates.

Unemployment Ticks Higher

Inflation is probably a little farther from its target than employment, but the downside risks to the employment mandate are real now,” Powell said. “This is a very difficult judgment call, but this is how we’re making it.”

If the Fed does “get the data it hopes” for, it could cut interest rates in September, Powell indicated. The chief central banker, though, kept his options open, saying he could imagine scenarios in which the Fed cuts several times — to none at all, depending on how the economy evolves.

Powell provided some rough sketches, saying that if inflation moves down more quickly or stays in line with Fed officials’ expectations while economic growth remains “reasonably strong” and the labor market continues along the path it’s on, a cut in September “could be on the table.”

But if upcoming inflation data shows an unexpected rise, which happened in the first quarter of this year, that could cause officials to further delay cutting rates, he said.

Given that the Fed only meets three more times in 2024, September, November, and December, it’s looking increasingly unlikely the Fed will lower rates more than once this year, as many believe the central bank would prefer to space out cuts over a longer period of time to see how the economy evolves.

On the other hand, “if the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond,” Powell said, implying that this would lead the central bank to lower rates.

Will This Rate Cut Provide Financial Relief?

“The Fed has teed things up nicely for a September rate cut – as long as the inflation data cooperate,” says Greg McBride, CFA, Bankrate chief financial analyst. “With two jobs reports and multiple inflation releases between now and the September Fed meeting, things could change in a hurry, or not much at all.”

One rate cut from the Fed won’t be enough to take away the pain of the costliest credit card rates ever. Consumers with high-interest debt are still recommended to prioritize paying off their balances as quickly as possible.

“Borrowers should not look at a coming interest rate cut as a panacea. Interest rates took the elevator going up but they’re going to take the stairs coming down,” McBride says. “High-cost credit card debt and home equity lines of credit will continue to be high-cost debt for some time, so utilizing zero percent balance transfer offers and prioritizing debt repayment remain crucially important.”

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