The Federal Reserve has decided to hold interest rates steady after its meeting on June 11 and 12, 2024. The federal funds target rate has remained at 5.25% to 5.5% since July 2023.
To combat inflation, the rate was raised 11 times between March 2022 and July 2023. Inflation has receded, but the Fed has signaled it wants more positive data before pulling the trigger.
In March 2024, the central bank predicted three quarter-point cuts by the end of the year. As time goes on, however, that has become less of a certainty.
Interest rates
- When will interest rates go down?
- What will happen when rates go down?
- What to do while interest rates are high
- What you should do when rates go down
- FAQ
When will interest rates go down?
The FOMC meets eight times a year to discuss whether to adjust the federal funds rate, a benchmark that governs overnight lending between commercial banks. Led by Federal Reserve Chair Jerome Powell, the group of 12 considers inflation, employment and the rate of borrowing, among other economic factors.
The FOMC has met four times so far in 2024, but declined to change rates. The remaining meetings this year are:
- July 30 and July 31, 2024
- Sept. 17 and Sept. 18, 2024
- Nov. 6 and Nov. 7, 2024
- Dec. 17 and Dec. 18, 2024
Amy Hubble, principal investment advisor with Radix Financial, told CNBC Select she doesn't expect a rate hike in July.
"That doesn't mean that the Fed is doing nothing, though," Hubble said. "They're doing their job — while we don't have any weaknesses in the job market, which is the Fed's most important objective, you still see inflation above 3%. That's higher than we want. We have started to see that come down, but we'll see how the summer goes."
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What will happen when rates go down?
The Federal Reserve requires banks and other depository institutions to hold 10% of their deposits in reserve. To stay as close to that threshold as possible without dipping below, banks loan each other money back and forth.
The FOMC sets the interest rate banks can charge each other, known as the federal funds rate. Banks then adjust the interest rates they charge consumers.
The fed fund rate has been 5.25% to 5.50% since July 2023. That's the highest since January 2001, when it rocketed to 6.00% after the dot-com bubble burst.
"When the Fed funds rate goes down, it will affect everything a little differently and in different magnitudes," Hubble said "CDs and other shorter-term cash vehicles, like money markets and bank savings rates, will see the rates drop almost immediately."
They won't be massive cuts, she added, but slight decreases in 0.25% increments over several years.
Changes to mortgage rates are more complex because creditworthiness and loan terms play a bigger role.
"These rates may not necessarily move exactly in tandem with a reduction in the federal funds rate," Hubble said. "But it's still fair to assume that a lower fund rate will also mean a lower mortgage rate."
What to do when interest rates are high
It could be a while before rates drop, but there are still things you can do to get ready.
Open a CD
When the Fed lowers rates, annual percentage yields (APY) on savings accounts dip, too. But rates on CDs are locked in when you open the account and stay fixed even if APYs decline.
A 12-month CD with Alliant Credit Union has a 5.15% APY, with no monthly fees and a minimum deposit of $1,000.
Shop around for the best CD rate
Explore adjustable-rate mortgages
In the pre-drop environment, Hubble is advising clients to look into adjustable rate mortgages (ARMs). These home loans start with a fixed rate for a certain timeframe. Once that time passes, though, your rate changes at certain intervals.
A 7/1 ARM, for example, means you'll get a fixed rate for the first seven years, and then the rate will adjust every year. With mortgage rates likely to drop, a variable rate could be attractive.
"Even though we don't know the exact timing, the Fed has signaled that it is done with the hiking cycle," Hubble said. "We would not expect mortgage rates to move higher from here."
PNC Bank is a top choice for ARMs, with options for 5/1, 7/1 and 10/1 mortgages and adjustable rates available on conforming, VA and FHA loans.PNC offers a $5,000 grant for down payments or closing costs for homebuyers who meet income or location requirements.
PNC Bank
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Conventional loans, FHA loans, VA loans, USDA loans, jumbo loans, HELOCs, Community Loan and Medical Professional Loan
Terms
10 – 30 years
Credit needed
620
Minimum down payment
0% if moving forward with a USDA loan
Terms apply.
Improve your credit score
If you've been waiting for rates to go down to apply for a mortgage or personal loan, now's the time to get your ducks in a row. Your credit score is one of the biggest factors lenders use to determine whether you'll get approved and the rate you'll be offered. A credit score of 620 is considered the baseline for a conventional mortgage, but if you boost your score to at least 750, you could qualify for the most competitive rates.
- Make on-time payments in full. Payment history is the most important element of your credit score. (You'll also avoidlate fees and interest charges.)
- Request higher credit limits. A solid record of on-time payments or a bump in income is usually necessary, but if you can raise your credit limit and keep your balance the same, it'll lower your credit utilization ratio, which accounts for 30% of your FICO® Score. (Just don't think of the additional credit as a green light for spending more.)
- Hold off on new lines of credit. The application could require a hard inquiry that dings your credit and, if you're approved, it will lower the average age of your accounts.
eCredable Lift® is a paid service that sends information about positive utility payments to TransUnion, one of thethree major credit-reporting agencies. Utility companies aren't typically included on credit reports, so on-time payments wouldn't otherwise help you build credit.
For $9.95 a month, you can link up to eight accounts — including your phone and internet — and report up to 24 months of payment data. For $14.95 a month,eCredable LiftLocker™ adds budgeting tools, identity theft alerts andcredit monitoring, among other benefits.
eCredable
On Ecredable's secure site
Cost
$9.95 per month for eCredableLift®
$14.95 per month for eCredableLiftLocker™Credit report affected
Transunion®
Credit scoring model used
FICO® Score 8 (or newer) or VantageScore® 3 (or newer)
Results vary. See website for details.
How to sign up for eCredable:
- Link your eligible utility company accounts to eCredable
- Receive an updatedVantageScore® and/or FICO® Score
Learn more about eligible payments and how eCredable works.
*Experian Boost™ also adds household payments to your report, but it's free and it works with Experian, rather than TransUnion. According to the company, users whose FICO Scores improve see an average increase of 13 points.
Experian Boost™
On Experian's secure site
Cost
Free
Average credit score increase
13 points, though results vary
Credit report affected
Experian®
Credit scoring model used
FICO® Score
Results will vary. See website for details.
How to sign up for Experian Boost:
- Connect the bank account(s) you use to pay your bills
- Choose and verify the positive payment data you want added to your Experian credit file
- Receive an updatedFICO® Score
Learn more about eligible payments and how Experian Boost works.
What to do when rates go down
Here are a few financial options to consider once the Fed does slash interest rates.
Refinance your mortgage
If you bought your home when mortgage rates peaked in 2023, now is a good time to look into refinancing. After the Fed cuts the fed fund rate, mortgage rates should decline.
One of CNBC Select's top picks for mortgage refinancing, Ally Bank offers fixed and adjustable rate terms with no application, origination, processing or underwritingfees. That can save you thousands.
Ally Home
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Conventional loans, HomeReady loan and Jumbo loans
Terms
15 – 30 years
Credit needed
620
Minimum down payment
3% if moving forward with a HomeReady loan
Terms apply.
Refinance your student loans
After the Fec makes cuts, Interest on student loans should also fall. Borrowers have felt the squeeze since the three-year moratorium on payments ended in October 2023.
SoFi offers terms of up to 20 years for refinancing student loans, with a 0.25% discount on your rate if you sign up for monthly autopay.
SoFi
Eligible borrowers
Undergraduate and graduate students, parents, health professionals
Loan amounts
$5,000 minimum (or up to state); maximum up to cost of attendance
Loan terms
Range from 5 to 15 years; up to 20 years for refinancing loans
Loan types
Variable and fixed
Co-signer required?
No
Offer student loan refinancing?
Yes - click here for details
Terms apply.
Pay off high-interest credit cards
Once rates go down, the annual percentage rate (APR) on your credit cards will likely drop, as well, making it easier to polish off those balances.
So, prioritize making sizable payments now before rates go up again later.
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FAQ
When will interest rates go down?
The Federal Reserve has indicated it may cut rates later in 2024. Certified financial planner Amy Hubble told CNBC Select she doesn't expect a rate cut until at least September.
When is the next Fed meeting?
The Federal Open Market Committee will next meet on July 30 and July 31, 2024.
What will happen to mortgage rates if the Fed lowers rates?
Cuts to the Fed fund rate will likely mean lower mortgage rates, though it might not be immediate. Your creditworthiness and loan terms also affect the rate you're offered.
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Meet our experts
At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed Amy Hubble, principal investment advisor with Seattle-based Radix Financial. A certified financial planner, Hubble received a Ph.D. in consumer economics from the University of Georgia.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every personal finance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products.While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
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Read more
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What the federal funds rate is and how it affects you
The best high-yield savings accounts
The 6 best banks for CDs
*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
