Will the Fed Cut Interest Rates in 2024? Here's What We Know

Surging inflation has been a persistent problem for Americans since 2021. And in 2022, things really came to a head, with annual inflation rising to 9.1% that June.

Thankfully, inflation cooled steadily in 2023. And with any luck, it will continue to do so in 2024. If that happens, there's a good chance the Federal Reserve will move forward with interest rate cuts. And while that's a good thing for borrowers, it's a less great thing for people with money in their savings accounts.

Why rate cuts may be in store

Inflation has long been a mainstay of the economy, and no one should expect the cost of living to stop rising completely. In fact, even the Fed itself is comfortable and happy with 2% inflation on an annual basis.

But the inflation levels we saw in 2022 were a far cry from 2%. As such, the Fed had no choice but to raise interest rates in an effort to encourage a pullback in consumer borrowing and spending.

Thankfully, the Fed's efforts have paid off nicely. While inflation is still elevated, it's not nearly as bad as it was in 2022. And as such, the Fed didn't feel the need to raise interest rates at its last three 2023 meetings. Plus, if inflation continues to creep closer to the 2% mark (as of November, it was at 3.1%), we could easily see rate cuts arrive in 2024.

Rate cuts could be a mixed bag

While interest rate cuts could be a good thing for some people's personal finances, for others, they may not be so great. Borrowers with existing credit card balances could be in for a world of relief if interest rates fall, because that might result in lower interest rates on the debt they're on the hook for. Plus, those looking to put new loans in place might benefit from lower interest rates at some point this year.

However, interest rate cuts could hurt savers with money in the bank. Once the Fed lowers rates, individual banks are likely to follow suit, leaving savers to earn less interest on their balances.

Hold off on signing a loan, but lock in a longer-term CD now

Since there's reason to believe we could be in for rate cuts this year, one thing you may want to do is wait to put a new loan in place. If you sign a loan today, you'll be looking at today's interest rates. If you're able to sit tight, you may end up in a position to snag a lower interest rate later on this year.

Of course, it's a good idea to work on boosting your credit score in anticipation of signing a loan. You can do so by paying all incoming bills by the time they're due, reducing the amount you owe on your credit cards, and reviewing your credit report for errors.

Meanwhile, if you're eager to capitalize on higher interest rates while they're still in play, you may want to look at opening a long-term CD, such as a 48- or 60-month CD. While you'll need to come to terms with the idea of tying your money up for a longer period, you might benefit tremendously if interest rates fall substantially in the coming years.

For example, let's say you open a five-year CD today at 4%. If, in a year from now, CDs are only paying 3%, and if they're then only paying 2% a year after that, you're suddenly in a great spot because you're earning a lot more interest on your money than those who are opening CDs from scratch.

All told, there's reason to believe that rate cuts will happen in 2024. But that's also not guaranteed. Your best bet is to keep track of economic news to see how things evolve.