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Updated on Aug. 2.
A surprisingly soft jobs report landed on Friday, in another sign of a slowing economy, just two days after the Federal Reserve opted to pause the federal funds rate again. The monthly report from the Bureau of Labor Statistics showed unemployment ticking up to 4.3% and new job creation coming in well below forecasts.
Analysts were already projecting a 100% likelihood of a rate cut at the next Fed meeting in September. In the wake of the latest jobs report, the futures market’s CME FedWatch Tool now predicts a 73.5% likelihood that the Federal Open Markets Committee will cut the current target rate by 50 basis points; just a day earlier, the same tool put that those odds at 22% (with a 78% chance of a 25-basis-point cut).
Updated on July 31.
The Federal Reserve paused interest rates at 5.25% to 5.50% again at its July meeting. It marks one full year since that rate was first set.
But it also appears highly likely that a rate cut could happen as soon as the Fed’s next meeting scheduled for Sept. 17-18. During a press conference following the rate announcement Fed Chair Jerome Powell said that a rate cut “could be on the table” as soon as September, but “we’re not quite at that point yet.”
In the Fed’s announcement, it changed its language regarding inflation to “somewhat” elevated rather than just plain “elevated.” Recent inflation reports have shown the kind of progress the Central Bank is looking for: The consumer price index (CPI) report that was released on July 11 showed a rate of 3% compared to a year prior and well below the 9% inflation high in June 2022. Meanwhile, the personal consumption expenditures (PCE) report — the Fed’s preferred inflation measure — that was released on July 26 showed a rate of 2.5% for all prices and 2.6% for all prices minus volatile food and energy prices. The Fed’s goal inflation rate is 2%.
On the employment side of things, the Fed notes that job gains have “moderated” and while the unemployment rate has increased, it still remains low at 4.1%.
Data reports over the next few months will guide the FOMC’s future actions. Powell said a rate cut could arrive at the Fed’s September meeting if inflation moves down quickly or in line with expectations, growth remains reasonably strong and the labor market remains consistent. But if the data changes dramatically and, for example, inflation rises, then a cut could be off the table for September.
At its June meeting, the Federal Open Markets Committee (FOMC) projected that the federal funds rate could drop to 5.1% at the end of 2024; 4.1% at the end of 2025; and 3.1% at the end of 2026. The Fed makes no guarantee that this will happen.
Following the Fed’s announcement, the futures market’s CME FedWatch Tool is pegging the odds of the first rate cut at the Fed’s September meeting at 100% and also favorably projects cuts in November and December.
» MORE: How is the economy doing?
The current Fed rate is 5.25% to 5.50%. That’s according to the Federal Open Market Committee (FOMC), the monetary policymaking part of the Federal Reserve that holds eight scheduled meetings a year to set the federal funds rate.
What is the Fed funds rate?
The federal funds rate, or Fed rate, is the interest rate that U.S. banks pay one another to borrow or loan money overnight. It also affects interest rates on everyday consumer products, such as credit cards or mortgages.
Since banks hold reserves to conduct everyday business such as having enough liquidity and clearing payments, banks that need more reserves often borrow money from other banks.
When is the next Fed meeting?
The Federal Open Market Committee's next meeting is Sept. 17-18, 2024. This is the next scheduled time that the FOMC could modify the federal funds rate.
Who sets the Federal funds rate?
The Federal Open Market Committee sets the federal funds rate. The FOMC sets the target rate range, and sets the Fed rate to be aligned with that target range.
What is the current Fed interest rate?
Right now, the Fed interest rate is 5.25% to 5.50%. The FOMC established that rate in late July 2023. At its most recent meeting in July, the committee decided to leave the rate unchanged.
Here are the most recent Fed rates from FOMC meetings:
FOMC meeting dates | Rate change | Fed rate (as a target range) |
|---|---|---|
July 30-31, 2024. | None. | 5.25% - 5.50%. |
June 11-12, 2024. | None. | 5.25% - 5.50%. |
April 30-May 1, 2024. | None. | 5.25% - 5.50%. |
March 19-20, 2024. | None. | 5.25% - 5.50%. |
Jan. 30-31, 2024. | None. | 5.25% - 5.50%. |
+ Click to see 2023 Fed rate increases
FOMC meeting dates | Rate change | Fed rate (as a target range) |
|---|---|---|
Dec. 12-13, 2023. | None. | 5.25% - 5.50%. |
Oct. 31-Nov. 1, 2023. | None. | 5.25% - 5.50%. |
Sept. 19-20, 2023. | None. | 5.25% - 5.50%. |
July 25-26, 2023. | Increase of 25 basis points (or 0.25 percentage point). | 5.25% - 5.50%. |
June 13-14, 2023. | None. | 5.00% - 5.25%. |
May 2-3, 2023. | Increase of 25 basis points (or 0.25 percentage point). | 5.00% - 5.25%. |
March 21-22, 2023. | Increase of 25 basis points (or 0.25 percentage point). | 4.75% - 5.00%. |
Jan. 31-Feb 1, 2023. | Increase of 25 basis points (or 0.25 percentage point). | 4.50% - 4.75%. |
+ Click to see 2022 Fed rate increases
FOMC meeting dates | Rate change | Fed rate (as a target range) |
|---|---|---|
Dec. 13-14, 2022. | Increase of 50 basis points (or 0.50 percentage point). | 4.25% - 4.50%. |
Nov. 1-2, 2022. | Increase of 75 basis points (or 0.75 percentage point). | 3.75% - 4.00%. |
Sept. 20-21, 2022. | Increase of 75 basis points (or 0.75 percentage point). | 3.00% - 3.25%. |
July 26-27, 2022. | Increase of 75 basis points (or 0.75 percentage point). | 2.25% - 2.50%. |
June 14-15, 2022. | Increase of 75 basis points (or 0.75 percentage point). | 1.50% - 1.75%. |
May 3-4, 2022. | Increase of 50 basis points (or 0.50 percentage point). | 0.75% - 1%. |
March 15-16, 2022. | Increase of 25 basis points (or 0.25 percentage point). | 0.25% - 0.50%. |
» RELATED: Learn what basis points are
After sitting at 0% for two years during the coronavirus pandemic, the rate steadily climbed starting in March 2022, as the Federal Reserve aimed to combat inflation. But the climb stopped a year and a half later. The Fed has paused rate hikes eight times since July 2023.
» MORE: Understand how raising interest rates helps inflation
The FOMC meets next on Sept. 17-18, 2024.
What happens when the Fed raises interest rates?
First, some context on Fed rate hikes. The Federal Reserve raises the federal funds rate to curb inflation. When it increases the Fed rate, banks pay more to borrow money from one another. When the federal funds rate rises, it doesn’t just affect banks sending and receiving money. Those banks pass on that expense to customers by charging higher interest rates on products like credit cards and mortgages. The idea is that by increasing the cost of credit, demand for goods and services will fall, causing their prices to subsequently fall, too.
Here’s why that happens: The Federal Reserve can change only the federal funds rate. But since that rate is tied to other rates and variables, those changes have wide-reaching effects. When the Fed rate goes up, it’s more expensive for banks to borrow money. So it gets more expensive for consumers to borrow money, too. Anything tied to financing, including credit cards, car payments, student loans or mortgages, can get pricier.
On the other hand, a rising rate can lead to higher yields for savers and better rates for CD investors in some bank accounts.
» MORE: See our CD rates forecast
What happens when the Fed lowers interest rates?
When the Federal reserve lowers the federal funds rate, banks pay less to borrow money from one another. Banks, in turn, lower interest rates on loans (including mortgages) and credit cards, lowering the cost of borrowing money to buy cars, homes and other big purchases. The stock market is likely to be affected by a lower Fed rate hike, with stock prices growing. All of these factors are intended to induce economic growth. With borrowing costs lowered, consumers have incentive to spend and invest more.
» LEARN: How the Federal Reserve affects mortgage rates
Unfortunately, lower interest rates at banks due to a lower Fed rate means that deposit account interest rates will fall, too. So annual percentage yields on deposit products such as CDs, savings and interest-bearing checking accounts will decline as well.
The Federal reserve paused on changes to the federal funds rate starting in July 2023, keeping rates steady for nearly a year. As such, bank interest rates generally remained flat starting in September 2023 until 2024 when interest rates began to fall. Banks started lowering rates on deposit accounts such as savings and certificates of deposit in anticipation of the Fed rate being lowered, but that has yet to come.
» Are rates going up or down? Check out NerdWallet’s savings forecast
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How does the Fed raise interest rates?
The Federal Open Market Committee, a 12-member group of banking leaders from around the country, sets the federal funds rate and much of the Federal Reserve’s monetary policy. It meets eight times a year and sometimes makes rate changes — including increases or decreases — outside its scheduled meetings.
Here's the FOMC meeting schedule in 2024:
Jan. 30-31.
March 19-20.
April 30 - May 1.
June 11-12.
July 30-31.
Sept. 17-18.
Nov. 6-7.
Dec. 17-18.
What is the Federal Reserve Board?
The Federal Reserve Board is the umbrella agency that governs the Federal Reserve System. It comprises three groups: the 12 Federal Reserve Banks in the U.S., the Board of Governors and the Federal Open Market Committee.
The Federal Reserve Board is responsible for the Federal Reserve achieving its three Congressional mandates: maintaining maximum employment, steady prices on goods and services, and moderate interest rates throughout the country.
