Will interest rates go down in 2024?

Rates are likely to continue falling before 2024 comes to an end.

What causes interest rates to rise?

The key factors that influence interest rates are the supply and demand of money, inflation, the monetary policy objectives of the Federal Reserve, and government borrowing.

What happens when the Fed rate increases?

When the Fed raises interest rates, it becomes more expensive to borrow money. This reduces the amount of money in the economy. It also impacts the stock and bond markets, and interest rates for credit cards and various types of loans. It also impacts savings and checking accounts.

LIVE Update: Federal Reserve Interest Rate Cut and What It Means For You

What is the current Fed interest rate?

FED RATE DECISION DATE	FEDERAL RESERVE INTEREST RATE
September 18, 2024	4.75% to 5.00%

Data source: The Federal Reserve.

The Federal Reserve interest rate, known as the federal funds rate, fed funds rate, or FOMC rate, is the interest rate at which banks and credit unions borrow from and lend to each other, and is the benchmark for nearly all interest rates. It's determined by the Federal Reserve and can be changed at any time.

Interest rates rise following September Federal Reserve meeting

After many months of holding rates steady, the Federal Reserve raised its benchmark interest rate by half a point on September 18. The target range for the federal funds rate will be 4.75%-5.00%. August's Consumer Price Index showed a substantial cooling of inflation, which no doubt fueled the Fed's decision to move forward with a more aggressive rate cut.

Analysis of Fed September 17-18, 2024 meeting

The Federal Reserve implemented 11 interest rate hikes in 2022 and 2023. Since the start of 2024, it's been signaling rate cuts but ultimately didn't take action until September.

The Fed has long been committed to an annual inflation rate of 2% in the long run. It's this rate, the central bank feels, that's most conducive to economic stability.

In August, the Consumer Price Index, which measures changes in the cost of consumer goods and services, rose 2.5% on an annual basis. This gets the Fed a lot closer to its preferred inflation target, which explains why the Fed felt ready to make its first rate cut in September.

It also explains why the Fed's first rate cut in years was fairly aggressive. The Fed could have opted to lower interest rates by a quarter of a point. Instead, the Fed made a bolder move by cutting rates by a full half point.

The Fed noted in its meeting statement that, "Inflation has made further progress toward the Committee's 2 percent objective but remains somewhat elevated."

The Fed has needed to strike a balance between bringing inflation back down to 2% and potentially upending the economy by driving up the cost of consumer borrowing to an unreasonable degree. Given the narrowing gap between inflation and its 2% target, its latest move seems reasonable.

The Fed had previously signaled that three rate cuts could be coming this year. But for that to happen, inflation will need to continue cooling. The central bank technically has two more opportunities to cut rates -- November and December.

A high-yield savings account is still a good option for short-term savings

Savings account interest rates aren't directly tied to the Fed rate movements, but they tend to move in the same direction. Since the Fed cut rates by 0.50% on September 18th, high-yield savings account rates have started dropping as well.

But don't panic -- if you put $5,000 in a high-yield savings account for one year, you'd only earn $25 less per year with a 4.50% APY than with a 5.00% APY. So if you're saving for a short-term goal or looking for a place to put your emergency savings, a high-yield savings account is still a great option.

Western Alliance Bank High-Yield Savings Premier has the highest APY on our list of the best high-yield savings accounts. See if it's right for you:

Rates as of Sep 20, 2024

Western Alliance Bank High-Yield Savings Premier

Open Account for Western Alliance Bank High-Yield Savings Premier

On Western Alliance Bank's Secure Website.

Member FDIC.

Rating image, 4.50 out of 5 stars.

4.50/5

Rating image, 4.50 out of 5 stars.

4.50/5

Open Account for Western Alliance Bank High-Yield Savings Premier

On Western Alliance Bank's Secure Website.

APY

5.31%

Min. To Earn APY

$500 to open, $0.01 for max APY

Pros/Cons

Competitive APY
No monthly account fee
Unlimited number of external transfers (up to daily transaction limits)
FDIC insured

Deposits and withdrawals can only be conducted via ACH transfer to/from an external bank account (limit to one linked account)
No ATM access
No wire transfers (inbound and outbound)
No branch access; online only

Bottom Line

Western Alliance Bank offers a higher APY than most high-yield savings accounts. Plus, it's FDIC insured; therefore, deposits are perfectly safe up to applicable legal limits. The main drawback is that accounts don't have many features. For example, you can only deposit and withdraw funds via ACH transfer to/from an external bank account. This account is solid for those who want a sky-high APY, but don't mind a bare-bones banking experience.

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When is the next Fed rate meeting?

The Federal Reserve's next meeting is scheduled for November 6 and 7. At its next meeting, the central bank will have to decide whether it wants to cut rates once again. That decision will hinge largely on how inflation trends in September. A CPI reading for October won't be available in time for the Fed's next meeting.

2024 FOMC meeting schedule (tentative upcoming dates)

Each meeting date is tentative until confirmed at the meeting immediately preceding it.

November 6-7 (Wednesday-Thursday)
December 17-18 (Tuesday-Wednesday)
January 28-29, 2025 (Tuesday-Wednesday)

What changes are expected at the next Fed meeting?

The Federal Reserve is committed to its goal of 2% inflation. At its next meeting, the Fed is likely to either hold rates at their current level or move forward with another rate cut.

When are Federal interest rates expected to drop?

Rate cuts are likely during the Fed's final two meetings of the year, especially if inflation continues to move closer to the 2% mark.

How high will U.S. interest rates get?

Interest rates just came off a 23-year high. It's unlikely that they'll rise from where they are today anytime soon.

Economic impacts to Fed rate changes

Here's everything you need to know about Federal Reserve interest rates and how they impact your wallet.

The Federal Reserve exists to promote a safe and strong economy, which includes maintaining healthy employment rates, stable prices, and reasonable interest rates.
The Federal Reserve manages the economy by strategically adjusting interest rates.
To stimulate the economy in times of recession, the Fed lowers interest rates.
Conversely, when the economy is performing well, it raises interest rates to maintain stability by keeping businesses and consumers in check, and preventing excessive inflation.
The federal funds rate is an important tool used by the Fed. This rate can be adjusted to help make economic changes less extreme, like reducing the effects of recessions, stopping prices from getting too high, and preventing market crashes.
By raising rates, the Fed hopes to cool off demand by making it more expensive to borrow money.
The goal for the Fed is to stop high inflation without potentially plunging the economy into a recession.

How do current Fed interest rates affect the economy?

Interest rates can have a significant influence on the economy. Ultimately, the Federal Reserve interest rate is an important tool for maintaining a stable economy.

The Federal funds rate is what banks charge each other for overnight borrowing, but it also impacts many business and consumer debt products.

Low interest rates can stimulate the economy by making it easier for people and businesses to borrow money for major purchases and investments, leading to increased economic activity. Meanwhile, high interest rates discourage spending from both consumers and businesses by increasing the cost of borrowing, leading to reduced economic activity.

How does inflation impact the federal interest rate?

One of the primary responsibilities of the Federal Reserve is ensuring price stability. This means keeping inflation consistently low and stable over the long term.

When inflation is low and stable, people can hold onto their money without having to worry about it losing its purchasing power due to high inflation. In simple terms, a dollar goes further in a low inflation environment.

Since the Fed began raising rates in 2022, the Fed has raised rates to 5.25 to 5.50%, making these hikes the fastest cycle in history.

Fed interest rates chart

The Federal Reserve sets the target rate as a range, giving it the flexibility needed to achieve its goals. The chart below shows how the upper limit of the federal funds target rate has changed over time.

Historical Federal Reserve interest rates

The table below shows the Federal Reserve interest rate change history, dating back to 2015.

DATE	FEDERAL RESERVE INTEREST RATE
September 18, 2024	4.75% to 5%
July 31, 2024	5.25%-5.50%
June 12, 2024	5.25%-5.50%
May 1, 2024	5.25%-5.50%
Mar. 20, 2024	5.25%-5.50%
Jan. 31, 2024	5.25%-5.50%
Dec. 13, 2023	5.25%-5.50%
Nov. 1, 2023	5.25%-5.50%
Sept. 20, 2023	5.25%-5.50%
July 26, 2023	5.25%-5.50%
June 14, 2023	5.00%-5.25%
May 3, 2023	5.00%-5.25%
March 22, 2023	4.75%-5.00%
Feb. 2, 2023	4.50%-4.75%
Dec. 14, 2022	4.25%-4.50%
Nov. 2, 2022	3.75%-4.00%
Sept. 22, 2022	3.00-3.25%
July 28, 2022	2.25%-2.50%
June 16, 2022	1.50%-1.75%
May 5, 2022	0.75%-1.00%
March 17, 2022	0.25%-0.50%
March 16, 2020	0%-0.25%
March 3, 2020	1.00%-1.25%
Oct. 31, 2019	1.50%-1.75%
Sept.19, 2019	1.75%-2.00%
Aug. 1, 2019	2.00%-2.25%
Dec. 20, 2018	2.25%-2.50%
Sept. 27, 2018	2.00%-2.25%
June 14, 2018	1.75%-2.00%
March 22, 2018	1.50%-1.75%
Dec. 14, 2017	1.25%-1.50%
June 15, 2017	1.00%-1.25%
March 16, 2017	0.75%-1.00%
Dec.15, 2016	0.50%-0.75%
Dec. 17, 2015	0.25%-0.50%

Data source: The Federal Reserve.

What is the federal funds rate?

The federal funds rate is the interest rate that banks charge when lending money to each other from their reserve balances.

But why would a bank need to borrow money from another bank?

The federal government requires that all "depository institutions," such as banks and credit unions, keep a specific amount in funds (reserves) on hand each night so there's no risk that they'll run low. Those that don't have enough reserves borrow from other financial institutions that have more than enough on hand. The interest rate they pay to borrow the money is known as the federal funds rate.

What is the federal funds target rate?

The federal funds target rate, set by the Federal Reserve, is the interest rate at which banks and other financial institutions borrow from each other.

It refers to the interest rate that banks charge each other for short-term loans.

When the Federal Reserve raises or lowers rates, it's changing the federal funds target rate. By adjusting this rate, the Fed can influence borrowing and lending practices throughout the economy.

Why does the Fed raise interest rates?

When the Federal Reserve interest rate is high, banks are discouraged from borrowing from each other, and the supply of cash in the economy decreases. This means consumers and banks are borrowing and spending less, which can cause the economy to slow down. The Federal Reserve typically raises the interest rate when the economy is strong.

It's easy to understand why the Federal Reserve would want to stimulate the economy, but it can be harder to understand why they might want to slow it down -- isn't economic growth good? Simply put, what goes up must come down, and the higher the economy climbs, the further it can fall.

When rates are low and people feel good about the economy, consumers often take on excessive debt, and lenders may even lend too much money to unqualified borrowers. This leaves people, businesses, and banks in a dangerous position when the economy inevitably slows down.

Why would the Federal Reserve lower interest rates?

When the Federal Reserve interest rate is low, there's more cash in circulation and banks are able to borrow from each other more freely. In turn, it becomes easier and more affordable for both consumers and businesses to borrow money, which boosts consumer spending and encourages businesses to expand, hire more workers, and increase wages.

Cutting interest rates stimulates the economy and drives economic growth, making it an appropriate tool to prevent and ease severe economic downturns. That's why you'll typically see the Federal Reserve start to lower the interest rate when economists are concerned about an oncoming downturn -- and then more aggressively in the midst of a downturn.

How does the Fed set interest rates?

The Federal funds rate is set eight times per year by the Federal Reserve's Federal Open Market Committee (FOMC). In addition to these eight annual meetings, the FOMC can also call emergency meetings to immediately change the rate during times of crisis.

When the FOMC sets interest rates, they set a target rate rather than the actual interest rate, as they don't have direct control over interest rates. Once the target rate is set, the Federal Reserve engages in open market operations to hit that target. This entails buying and selling government securities such as Treasury bills, bonds, and repurchase agreements to manipulate the supply of money in the economy, which in turn influences interest rates.

When the Fed buys up government securities, it injects money into the economy. Subsequently, banks have more cash on hand, and they decrease their interest rates to attract more borrowers. On the other hand, when the Fed sells government securities, they take money out of the economy. Banks then have less cash to lend, so they increase interest rates.

How other U.S. interest rates are impacted

Credit cards and savings accounts are most sensitive to changes in the Federal funds rate, followed by personal loans and auto loans, and finally, mortgage loans. The interest rates on all of these products are determined by other important factors, such as creditworthiness.

As the Federal Reserve interest rate is a short-term rate, changes in it have a stronger impact on short-term lending products. They also tend to have a bigger impact on products with variable, rather than fixed, interest rates.

Here's how banks set the interest rates on credit cards, loans, and savings accounts and how changes in the Federal funds rate might affect you.

Credit card interest rates

Most credit cards have a variable interest rate, so a change in the Fed's benchmark will directly impact acredit card's annual percentage rate (APR). This is directly tied to the prime rate, which is the interest rate for customers with prime credit, and it's pegged at 3% above the upper limit of the federal funds rate.

What's more, since credit cards are the most short-term borrowing method, the rates will change almost immediately in response to Federal funds rate changes. However, because interest rates on credit cards are relatively high, these changes -- for example, your APR going from 17.25% to 17.50% -- are often unnoticeable.

With the recent interest rate hikes, the interest rate on credit cards have hit an all-time high.

The average credit card interest rate is 23.30% for new offers and 21.51% for existing accounts.
The average credit card APR was at 16.17% in March 2022, before the Fed began its rate increases.

Personal loan interest rates

The interest rates on personal loans aren't directly tied to the prime rate or the Federal funds rate, but they can be influenced by it. Changes in the Federal funds rate can eventually lead to changes to personal loan rates, but those rate changes may not be as immediate as they are with credit cards.

In addition, many personal loans have fixed interest rates, meaning if you already have a personal loan, the rate will remain the same for the life of the loan -- regardless of how the Federal funds rate changes. Loans with variable interest rates can fluctuate as the Federal funds rate changes.

The average interest rate for a 24-month personal loan has increased from 9.38% in 2021 to 11.92% in May of 2024, the latest numbers available from the Fed.

Auto loan interest rates

Like personal loans, auto loan interest rates aren't directly tied to the Federal funds rate. However, they can be influenced by it, particularly because they're somewhat short term -- typically two to five years.

The changes in auto loan rates are likely to be minimal though, as they're largely based on other factors like your credit score and the bond market.

The average interest rate on a 72-month auto loan was 8.32% as of May 2024.

Mortgage loan interest rates

Mortgage loans are typically long-term loans, so short-term interest rate changes aren't likely to affect them as much. Mortgage rates aren't directly tied to the Federal funds rate -- they're set based on a variety of economic indicators, which can include the Federal funds rate, but also include factors such as unemployment, inflation, and the bond market.

The current 30-year fixed mortgage rate is 6.20%. Mortgage rates have been fluctuating in 2024.

While those with an existing mortgage will not be affected by the recent rate hike, those with an adjustable-rate mortgage (ARM) will likely see their costs rise.

The average interest rate for a 15-year mortgage is 5.27%.

Savings account interest rates

Interest rates on savings accounts are fairly responsive to changes in the federal funds rate. When interest rates are cut, banks are likely to cut the APYs offered by their savings accounts fairly quickly to protect their profits.

Increases in the federal funds rate usually lead to less dramatic and immediate increases in savings account rates, but a rising rate environment is still advantageous for savers.

The current average APY for savings accounts is now at 0.46%.
The average money market rate is 0.64%.
CD rates have also gone up since the Fed's rate hikes. The average rate for a 12-month CD is currently 1.88%.

The Federal Reserve interest rate is an important tool for guiding the economy. Increases in the federal funds rate can protect a strong economy, while cuts to the federal funds rate can help cushion the fall for a declining economy.

These changes can impact your wallet -- low interest rates are good for borrowers, while high interest rates are good for savers. Ultimately, though, it's your own money habits that are the main factor in determining your financial future.

Data research sources

FAQs

Rates are likely to continue falling before 2024 comes to an end.
The key factors that influence interest rates are the supply and demand of money, inflation, the monetary policy objectives of the Federal Reserve, and government borrowing.
When the Fed raises interest rates, it becomes more expensive to borrow money. This reduces the amount of money in the economy. It also impacts the stock and bond markets, and interest rates for credit cards and various types of loans. It also impacts savings and checking accounts.

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Federal Reserve Interest Rate Cut: 4.75% to 5.00% as of September 20, 2024