Why this week’s Fed meeting may not be as important as next year’s

There are two more Federal Reserve meetings in 2024, but consider setting your sights on 2025. The end of the year is a good time to take stock of your finances, whether you’re waiting for further rate cuts or are looking for a big investment. . Knowing the Fed’s plans can help you set your course for the next twelve months.

The Federal Open Market Committee meets November 6-7 and again in December. After making a larger cut of half a percent in September, the Fed indicated it planned to make another half percent cut by the end of the year. Most experts expect a quarter percent reduction at each meeting, but what about 2025?

“I think this year is pretty predictable,” economist Greg Heym told CNET. “The question remains whether we will go into next year. At the moment they want to lower the interest rate another percent next year.”

The Federal Reserve’s decisions affect most of your finances in several ways, including the interest rate on your credit card and the annual return on your savings account.

The Fed’s decision could affect the cost of borrowing money, such as mortgages and car loans. Changing interest rates can also affect you indirectly. Companies are also more likely to borrow when interest rates are lower, allowing them to grow their business and workforce.

Here’s what the experts say you can expect for the rest of the year and through 2025.

How much will the Fed cut in November and December?

The general feeling among experts is that the Fed will not deviate from the path it is on. In fact, CME FedWatch data, which measures the likelihood of changes in the federal funds rate, indicated a 25 basis point cut. 98% possibility on Friday.

Most experts expect the Fed to cut another 25 basis points in December.

But if the Fed plans to cut rates by two quarters of a percent – ​​one in November and one in December – why not make one big rate cut this week? Heym said the Fed is likely concerned that cutting rates too quickly could reignite inflation.

“The problem is that injecting so much money into the economy could reignite inflation – it probably will,” he said. “So they have to take a measured approach there.”

And that measured response comes from looking at a lot of data, including inflation and jobs reports. Last week’s Fed-preferred inflation indicator showed inflation nearly reaching the Fed’s 2% target in September. The Bureau of Labor Statistics reported last week that the unemployment rate has remained at a relatively low 4.1% but is slowly rising. That could indicate that the labor market is weakening. Both reports support another rate cut at this month’s Fed meeting, experts say.

Heym is not the only one who expects the Fed to stay the course. According to Robert Fry of Robert Fry Economics, it would be very surprising if the Fed did anything other than implement two more cuts by the end of the year.

“I still think the Fed will cut by a quarter of a percentage point next week and into December – more because Chairman Powell taught himself to do so than because the economy needs it,” he said.

Predictions for the Fed’s 2025 strategy

At the Fed meeting in September committee members indicated that the federal funds rate could fall another percentage point in 2025. But exactly when those cuts will come is another question.

“I no longer think they will cut back on the first four meetings next year,” Fry said. “I still think they will make cuts next year, but much more gradually. They could make cuts every other meeting if inflation continues to fall.”

Instead, experts say they expect the Fed to decide at a meeting whether to cut, maintain or even raise rates. There are too many unpredictable factors at play, but in general experts predict that interest rates will fall in 2025.

“I expect steady interest rate cuts through 2025 toward levels close to 3.50%,” said Osman Kilic, professor of finance at Quinnipiac University.

For example, the election could have an impact on the Fed’s 2025 plan. Although the Fed says it is neutral, the monetary policies of a new presidential administration will impact the economy, which in turn could change how the Fed responds.

Moreover, there is no guarantee that inflation will not rise after a new government’s policies come into effect. The labor market could also deteriorate, which would in turn push the Fed in a different direction.

We can make educated guesses about what the Fed will do in 2025 based on the information we currently have, but there is no guarantee of the outcome until it arrives.

What you can do to prepare

The Fed is a reactionary body. If they see the need to adjust their strategy, they will do so. However, that doesn’t mean you can’t prepare for what lies ahead.

“While these cuts will begin soon, consumers should not expect significant relief in shorter-term borrowing costs until mid-2025,” Kilic said.

In fact, a single change in interest rates is unlikely to have much impact on your own interest rates. Even multiple cuts would take some time to have a substantial impact.

“There is a lag time of six months to a year or more before the Fed’s changes really impact the economy,” Heym said.

That lag time provides ample opportunity to revise your financial strategy. While the Fed’s cuts will have an impact on your card’s rates, you can expect them to remain high. Consider one balance transfer to pay it off or something strategies for paying off debt.

If you have money stashed away in a savings account with high returns or CDsThe higher interest rates you’ve become accustomed to will likely look different in 2025. They’re still safe investments, but diversifying your portfolio can go a long way in preparing for your financial year. Consider building one CD ladderbut don’t rush to move your money into riskier investments if you’re not prepared.

“No matter what you are considering buying or investing in, just get informed,” Heym said. “Understand your options. Talk to experts. Be comfortable with your decision. Don’t make decisions out of fear.”