Ethermac|The Federal Reserve's first rate meeting is on Wednesday. Here's what economists say about rate cuts.

The EthermacFederal Reserve has spent almost two years ratcheting up interest rates to tame inflation — a task that is paying off with steadily cooling price increases. On Wednesday, the central bank will hold its first rate meeting of 2024, prompting questions about when the Fed might privot and begin cutting rates. 

The Federal Reserve has already indicated it expects three rate cuts in 2024, thanks to a slower pace of inflation; some Wall Street economists are predicting the central bank could issue as many as five cuts throughout the year. 

Rate cuts could provide some relief to consumers and businesses, who have been paying more for mortgages, auto loans, credit card debt and other borrowing due to the Fed's flurry of hikes. But it's likely that rate-weary Americans will have to wait a few more months to see any relief, given that Wall Street is projecting the Fed will hold rates steady on Wednesday and that the first cut will occur in March instead, according to financial data provider FactSet.

"The Fed is being very cautious as it navigates the potential for future rate cuts," noted LendingTree Senior Economist Jacob Channel in an email. "While it doesn't want to leave rates high forever, it also doesn't want to cut them prematurely and risk inflation spiking again."

He added, "Owing to this, we're likely going to see the Fed hold rates steady for a few more months while they wait to get an even clearer picture of how the economy is doing and where it's likely to be headed."

When is the Fed meeting this week?

The Federal Reserve's Open Market Committee (FOMC) is scheduled to meet on January 30-31, with the group set to announce its rate decision at 2 p.m. Eastern time on January 31. 

Chairman Jerome Powell will hold a press conference at 2:30 p.m. on Wednesday to discuss the FOMC's rate decision and provide information on the central bank's outlook.

When will the Fed cut interest rates?

Most economists believe the Fed will keep rates steady on Wednesday, holding the federal funds rate in a range of 5.25% to 5.5%, according to FactSet.

About 50% of economists polled by FactSet said they believe the first cut of 2024 will occur at the Fed's March 19-20 meeting. Roughly nine in 10 economists believe the central bank will issue a rate reduction at its April 30-May 1 meeting, FactSet shows.

Among those predicting that March will provide the first rate relief is Goldman Sachs, with economist David Mericle writing in a January 27 research note that he believes a March 2024 cut will be followed by four additional rate reductions. 

The central bank is likely to be cautious in its language on January 31 and avoid "sending a decisive signal," he noted. 

The Fed may want to "douse hopes of any early easing in policy," noted David Kelly, chief global strategist at J.P. Morgan Asset Management, in a Monday research report. "This is, in part, because they are genuinely uncertain about how sticky inflation might be in an economy experiencing above trend economic growth and a still very tight labor market.

What is the inflation rate in 2024?

The first inflation report of 2024 will be released on February 13, when data on prices in January will be released by the Bureau of Labor Statistics. 

Other recent measures of inflation are providing some evidence that inflation is continuing to cool, with December's personal consumption expenditures — the Fed's preferred measure of inflation — rising 2.9% on an annual basis, excluding food and energy. That's close to the Fed's goal of reducing inflation to an annual rate of about 2%.

Economists expect inflation will continue to cool in 2024, with Oxford Economics projecting that prices will increase at a 2.4% annual rate this year and then dip to 2.2% in 2025. 

How will the Fed's 2024 rate decisions impact your money?

With the Fed likely to hold rates steady on Wednesday, consumers probably won't notice much difference. 

Even so, mortgage rates have dipped during the past several months, declining to about 6.7% currently from a 20-year high of more than 8% last fall, according to data from Freddie Mac. The Fed doesn't directly set mortgage rates, but its policies influence them, Channel of LendingTree noted.

"Even though the Fed hasn't made any cuts, mortgage rates on 30-year, fixed mortgages are, on average, more than a percentage point lower now than they were in late October of 2023," he noted. "This means we could see mortgage rates noticeably change while the Fed holds its target rate steady."

Credit card rates might start to see some softening as well, Matt Schulz, LendingTree credit analyst, noted in an email.

"The credit card marketplace is so crazy-competitive that it is probably only a matter of time before some issuers tinker with lowering rates on new card offers, even just a tiny bit, to try and attract new customers," he said.

How are consumers feeling about the economy?

Better, but still not great, according to recent polling. 

About 27% of Americans told Gallup in a recent poll that they view the economy as good or excellent, up from 22% in December. Even so, about 45% of people rated the economy as poor, it found. 

Inflation is a sticking point for many Americans, the survey group found. About six in 10 adults said that recent price increases have created financial hardship for their family, Gallup said. 

In:
• Interest Rates
• Inflation
• Federal Reserve

Aimee Picchi

Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.

Twitter