Why Hasn't the Fed Lowered Interest Rates Yet?

In 2022, inflation ran rampant, wreaking havoc on consumers' personal finances. These days, inflation is in a much better place, and prices aren't soaring the way they were roughly two years ago.

Despite that, the Federal Reserve hasn't begun to lower its benchmark interest rate. And the Fed may not start cutting interest rates until the midpoint of 2024. But there's a big reason for that.

The fight against inflation isn't over

In June 2022, annual inflation peaked at 9.1%, as measured by that month's Consumer Price Index (an index that measures changes in the cost of goods and services). By comparison, in January 2024, annual inflation only came in at 3.1%. So all told, there's been a world of improvement.

However, inflation still isn't where the Fed wants it to be. The Fed has long maintained that it likes to target a rate of 2% inflation over the long run. It's this rate, the central bank feels, that's most conducive to long-term economic stability. 

As such, the Fed may not move interest rates at its upcoming March meeting. Rather, consumers may need to sit tight a bit longer for interest rates to start falling.

It pays to bide your time

You may be hoping for interest rate cuts sooner rather than later so you can sign an auto loan, personal loan, or home equity loan at a potentially lower interest rate than what you'd be looking at now. Unfortunately, those rate cuts could still be several months away. If you're able to wait, do so. Waiting until later in 2024 to put a loan in place could result in lower monthly payments.

That said, there's one important thing you should try to do between now and when you sign a loan -- boost your credit score. The higher that number is, the more likely you are to not only get approved to borrow the sum you want, but also, lock in a more competitive interest rate. 

One effective way to boost your credit score over time is to pay all bills on time. And since we could still be a few months away from rate cuts, that's a good strategy to employ today. Another option is to pay down some existing credit card debt if possible, to lower your credit utilization ratio.

Don't forget to review your credit report for errors

Of course, paying off credit card debt isn't easy, especially at a time when inflation, though better than it was before, is still persistent. But one credit score-boosting move that is easy is to review your credit report for errors. Correcting a mistake could result in a nice bump that makes you a more appealing loan candidate. 

You can request a free copy of your credit report every week from each credit bureau -- Experian, Equifax, and TransUnion. And it pays to check all three at regular intervals for a comprehensive review. 

The Fed is likely to start cutting interest rates at some point in 2024. But more progress probably needs to be made on the inflation front for those rate cuts to happen. So for now, your best bet is to wait on signing a loan if possible, but also, to put yourself in the best position to snag an affordable one.