Explainer: What rate cuts matter for US economy in 2024

Interest rate cuts could bring relief to consumers and businesses who have been paying more for mortgages, auto loans, credit card debt, and other forms of borrowing as a result of the Fed’s increases.

However, rate-weary Americans will likely have to wait a few more months for respite, as Wall Street predicts the Fed will hold rates constant on Wednesday and the first cut will occur in March instead, or even in May following the private sector employment’s negative data print; the latest ADP data.

The Labour Department reported that workers’ pay and benefits grew at the slowest rate in two and a half years in the fourth quarter, which is “news that will be welcomed by the Federal Reserve as it concludes its two-day Federal Open Market Committee meeting today,” according to Oxford Economics analysts in a research report. The Federal Reserve’s Open Market Committee (FOMC) is slated to meet from January 30-31, with the policymaking committee announcing its rate decision at 2 p.m. Eastern time on January 31.

Most economists expect the Fed will hold rates unchanged on Wednesday, keeping the federal funds rate between 5.25% and 5.5%. Approximately 50% of economists polled by FactSet predict the Fed will make its first cut in 2024 at its March 19-20 meeting. Approximately nine out of ten economists anticipate the central bank will cut interest rates at its meeting on April 30 and May 1.

Goldman Sachs is among those anticipating that March will provide the first rate cut, with economist David Mericle writing in a January 27 research note that a March 2024 decrease will be followed by four further rate cuts. On January 31, the central bank is likely to use careful wording to avoid “sending a decisive signal.”

Economists expect inflation to remain low in 2024, with Oxford Economics predicting that prices will rise at a 2.4% annual pace this year before falling to 2.2% in 2025. With the Fed expected to maintain rates constant on Wednesday, consumers may not notice a significant difference in their money. Mortgage rates have decreased over the last few months, and credit card rates might start to see some softening as well.

According to recent research, consumers are more optimistic about the economy, with over 27% of Americans ranking it as good or excellent, up from 22% in December. However, around 45% of respondents ranked the economy as poor, with inflation being a major concern for many Americans.