U.S. Federal Reserve Holds Interest Rates, Expects Just One Cut in 2024

The U.S. Federal Reserve said on June 12 that it was holding its key interest rate unchanged at approximately 5.5%, a level it has held since July 2023. The Fed has raised interest rates 11 times since March 2020 to fight inflation. Inflation has fallen from a high of 9% in June 2022 to 3.4% today, but it remains well above the central bank’s 2% target.

And the U.S. central bank isn’t in any rush to start cutting interest rates either. While Americans may want the Fed to start cutting rates now, it fears a premature rate cut could reignite higher inflation.

What Are U.S. Interest Rates At?

Late last year it was widely expected that the Fed would cut its overnight lending rate in 2024 as many as six times. But by March 2024, the Fed said it was looking at three interest rate cuts this year, but after inflation picked up, has since scaled back its guidance to just one this year.

The Federal Reserve is still optimistic, though, and expects interest rates to fall considerably over the next three years, from 5.1% in 2024 to 4.1% in 2025, and 3.1% in 2026. These projections could change but show that interest rates are heading in the right direction.

When is the first U.S. rate cut coming? The bond market has priced in a 60% chance of a September interest rate cut. However, there is a chance the Fed may not announce any rate reductions this year, leaving interest rates at their current 23-year high.

The first interest rate cut is expected to be just 25 basis points, but over time, rate cuts will make it less expensive to borrow, providing consumers who have been hit with high rates on mortgages, car loans, and credit cards, serious relief. By extension, rate cuts also help energize the economy and juice the stock market.

Have Other Central Banks Cut Their Interest Rates?

Central banks in other major economies have already begun reducing their interest rates, including the Bank of Canada and the European Central Bank.

Does it matter that the Bank of Canada has begun lowering its interest rates and the Federal Reserve hasn’t? A diverging monetary policy could result in a lower Canadian dollar. Most notably, it would make imports from the U.S., Canada’s largest trading partner, more expensive, which could reignite inflation.

One or two diverging interest rate cuts may not be enough to send the Canadian dollar tumbling, but if the Bank of Canada continues to trim rates in 2025 and the Federal Reserve doesn’t, the loonie could fall to between $0.72 and $0.50 U.S.

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