What You Need to Know Ahead of The Federal Reserve's Interest Rate Policy Meeting

Update, May 1, 2024: This article has been updated to add more information about Wednesday's announcement.

If you’re waiting for interest rates to fall for mortgages or other loans, better sit tight: it might be a while. 

Officials at the Federal Reserve were looking for proof that inflation was vanquished before cutting the central bank’s key interest rate, which influences borrowing costs on all kinds of loans. Instead, over the past three months, price increases have flared up again.

"The Federal Reserve will likely signal next week that its confidence that inflation is on a sustained path to 2% has been diminished and that it is prepared to leave interest rates at current levels until it sees clear signs disinflation is back on track," wrote Nancy Vanden Houten, lead economist at Oxford Economics.

After their meeting comes to a close on Wednesday afternoon, the Federal Reserve will release its official decision at 2 p.m. Eastern Time and Chair Jerome Powell will speak at a press conference 30 minutes later.

You can follow along with our live coverage of the event here.

Fed Needs Confidence Inflation Under Control

The Federal Open Market Committee, the central bank’s policy body, is likely to leave the fed funds rate unchanged when it wraps up its two-day meeting on Wednesday.

The Fed will also likely send the message that it plans to keep squeezing inflation and the economy with high interest rates for longer until inflation is under control. 

The Federal Reserve’s war on inflation has been stuck in a stalemate all year long. In turn, hope for rate cuts in the coming months has dimmed. The Fed has kept its benchmark interest rate at a range of 5.25% to 5.5% since July. 

That is the highest since 2001 and is designed to quell inflation by discouraging borrowing and spending. Instead, consumers have kept spending and inflation has stayed stubborn, according to recent economic data. 

Earlier this year, Fed officials projected they’d cut the fed funds rate three times as inflation cooled. Financial markets had expected those cuts to begin in June. However, after three months in a row of above-expectation inflation reports, traders are now pricing in September as the earliest month for the first reduction, according to the CME Group’s FedWatch tool, which tracks the probability of rate movements based on fed funds futures trading data. 

All Eyes on Comments About Recent Data

Given the comments of Fed officials in recent weeks, a rate cut at the May meeting would come as a massive surprise, so all eyes will be on the communications surrounding the decision. 

"We think Chair Powell will stress that it’s appropriate to give restrictive policy further time to work. He's fresh off his appearance at the IMF-WB Spring Meetings where he expressed his latest views on monetary policy - it is unlikely his message deviates far from the views he expressed," analysts at Morgan Stanley wrote.

Many experts are holding out hope that inflation will cool in the coming months, giving the Fed breathing room to cut rates later in the year.

According to data from private companies, rents have stopped rising quickly, and that should put downward pressure on official inflation measures like the Consumer Price Index. Housing costs are the biggest component of the CPI and tend to reflect rental data up to a year after markets actually change. 

Still, with the economy booming and unemployment low, there’s little pressure on the Fed to cut rates to stimulate the economy and prevent a recession; and more pressure to keep them high to quell inflation. 

“Given the momentum for the economy and prices, we don’t expect the Fed to strongly consider easing monetary policy until its September meeting at the earliest,” Nationwide senior economist Ben Ayers said in a commentary. “There is also a risk that the further economic resilience pushes off any rate declines until 2025, a key downside risk for growth next year.”