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Fed to keep interest rates at 23-year high for another 2 months

The Federal Reserve's decision to keep interest rates the same will have a major impact on car loans and credit card rates.
Fed to decide whether to keep interest rates at 23-year high
Posted at 11:59 AM, Jan 31, 2024

The Federal Reserve announced Wednesday it will keep federal interest rates at a 23-year high as inflation has eased in recent months. 

The federal interest rate range is between 5.25% and 5.5%. It has remained at that level since August 2023. The last five months have marked the highest interest rates since early 2001. 

The move was not unexpected as recent economic data suggested the Federal Reserve would likely stay put. 

The Bureau of Labor Statistics released updated figures earlier this month showing inflation is easing. The new data also shows that wages have more than kept up with inflation over the last year. 

But those very same wage increases have also been what has kept inflation from falling. Federal Reserve Chair Jerome Powell has stated the Federal Reserve's goal is to keep inflation to an annualized rate of 2%. As of December, it was 3.4%, but a far cry from the over 9% inflation the U.S. experienced in the middle of 2022. 

"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," the Federal Reserve said in a statement on Wednesday.

SEE MORE: US economy ended 2023 on high note as GDP, disposable incomes grew

Powell has said the Federal Reserve is trying to balance the need to reduce inflation while preventing the labor market from being stifled. In recent cases when interest rates increased, like they did in 2000 and 2007, a recession followed. 

But the strength of the U.S. economy kept the Federal Reserve from dropping interest rates. Last week, the government released data showing the U.S. real gross domestic product grew at an annual rate of 3.3% in the final quarter of 2023, marking a sixth-straight quarter of growth for the U.S. economy. 

The unemployment rate also remained below 4% for the entire year. 

"If the Fed continues to be as strong as it has been, the Fed will feel no urgency to cut rates," said Bill Emmons, adjunct lecturer at Washington University. "The anticipation the Fed will cut rates at some point this year already is reflected in some interest rates. For example, mortgage rates have come down already.  Some other consumer rates, though, are likely to wait until the Fed makes those cuts, for example, car loans, credit card rates — those are much more tied to the specific rate the Fed sets."

Emmons believes it is unlikely the Fed will cut interest rates at its next meeting in March. 

"The most likely next date for the first cut is April or later," he said. 

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