The Federal Reserve’s next meeting is September 17 and 18 and expectations have grown about the likelihood it will lower rates for the first time in 14 months.

In a keynote address in August, Fed Chair Jerome Powell indicated the time had come for an adjustment, though he didn’t specify when or how much.

The CME Group, which tracks the probability of a change to the federal funds target rate, put the odds of a cut after this week’s gathering at virtually 100%.

To combat rising prices, the fed funds rate was raised 11 times between March 2022 and July 2023.

The 12-month inflation rate is sitting at 2.5%, the lowest it’s been since February 2021, but still above the Federal Reserve’s goal of 2%.

The FOMC has met five times so far in 2024 but declined to change rates each time. That’s likely to change this week, however: In a Reuters poll from September 10, 100% of the more than 100 economists surveyed anticipated a rate cut announcement on September 18.

Nearly 70% predicted two more 25-basis-point rate cuts in 2024, after the FOMC meetings on November 6 and 7 and December 17 and 18.

The CME Group’s FedWatch tool put the probability of a 25-basis-point cut at 53%, but gave near-equal odds (47%) on a cut of 50 base points.

That would lower the fed funds target rate to between 4.75% and 5%.

The Federal Reserve doesn’t directly control interest rates. It does influence them, however, by setting the federal funds rate, which determines how much banks can charge each other when lending or borrowing excess reserves. Banks, in turn, adjust the rates they charge for mortgages, personal loans and other financial products.

The fed funds rate has remained at 5.25% to 5.50% since July 2023. That’s the highest it’s been since January 2001, when it rocketed to 6.00% after the dot-com bubble burst.

Amy Hubble, principal investment advisor with Radix Financial, expects a cut this week. But, she cautions, consumers shouldn’t expect a massive and sudden drop in interest rates as a result.

“If they cut 0.25% at a time, that’s 12 cuts over several years,” Hubble said. “This isn’t something that’s going to happen quickly.” 

When the Fed does lower its benchmark rate, “it will affect everything a little differently and in different magnitudes,” she added.

Savings

“CDs and other shorter-term cash vehicles, like money markets and bank savings rates, will see the rates drop almost immediately,” Hubble said. 

That decline will be small but it will continue into 2025, when the Fed is expected to make more cuts. So, now would be a good time to lock in a CD with a high yield.

Student loans

Student loan borrowers have felt the squeeze since the three-year moratorium on payments ended in October 2023. Lowering the fed funds rate will see interest rates on student loans drop, too. if you have newer loans and were hit with high rates, the next year or two may be a good time to consider refinancing.

SoFi offers terms of up to 20 years for refinancing student loans, with a 0.25% rate discount if you sign up for monthly autopay.

Mortgages

Because creditworthiness and loan terms play a bigger role, changes in mortgage rates are more complex.

“These rates may not necessarily move exactly in tandem with a reduction in the federal funds rate,” Hubble said. “But it’s still fair to assume that a lower fund rate will also mean a lower mortgage rate.”

One of our top picks for mortgage refinancing, Ally Bank offers fixed and adjustable-rate terms with no lender fees, which can save homeowners thousands.

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