What interest-rate cuts in 2024 could mean for you

The Federal Reserve penciled in three interest rate cuts in 2024 after continuing its pause on rate hikes. Here's what that could mean for you.

• The Federal Reserve continued its pause on interest rate hikes on Wednesday.
• It also projected three interest rate cuts in 2024.
• That could mean cheaper costs to borrow money — from credit cards to mortgages to business loans.

The nation's central bank projected some financial relief for Americans in 2024.

On Wednesday, the Federal Open Market Committee announced it would be holding interest rates steady yet again in its final major decision of the year. It came on the heels of more data reflecting cooling inflation — the Consumer Price Index, which measures inflation, rose 3.1% year-over-year, down from October's reading of 3.2%.

Alongside the FOMC's announcement, the committee also released its Summary of Economic Projections, which outlines the Fed's economic outlook based on current data. The committee projected three interest rate cuts in the coming year, with more expected in 2025 and 2026.

Those cuts aren't guaranteed, however, and the central bank is still watching for even tamer inflation. "We still have a ways to go. No one is declaring victory, that would be premature, and we can't be guaranteed of this progress. So we're moving carefully in making that assessment of whether we need to do more or not," Fed Chair Jerome Powell said during the Wednesday press conference.

Cheaper mortgages and credit card payments

While Powell noted that the interest rate cut projections are subject to change, he said the economy is moving in the right direction. If they do happen, it'll become cheaper for Americans to borrow money and impact their financial lives in several ways:

Credit cards with variable interest rates would translate to lower monthly payments for the credit-card holder. The average rate is currently 27.82%.

The same idea generally applies to mortgages — while a cut would not impact existing fixed-rate mortgages, adjustable-rate mortgage payments would decrease. It would also make new fixed-rate mortgages more affordable for those looking to buy a home in 2024 and beyond. The average rate is currently about 7%.

Boosting businesses and stocks

Cuts would also make it easier for businesses to take out loans, which would be significant for many business owners who have struggled in the past year due to high inflation and interest rate hikes. Also, a cut could lead businesses to increase spending and investments, which would in turn cause stock prices to rise.

Indeed, even the hint of possible rate cuts coming next year made Wall Street giddy. Stocks shot up after the Fed's announcement Wednesday afternoon, and the Dow Jones industrial average closed at an all-time high.

Potential cuts might also help business owners expand. According to an October survey from the Wall Street Journal of more than 450 small-business owners, more than half of them reported that high interest rates were impacting their operations, so rate cuts in 2024 would bring them financial relief.

Too soon to say when rate cuts will come

It's unclear when exactly the Fed will decide to cut interest rates next year. Greg McBride, chief financial analyst at Bankrate, said in a statement that "nothing in the economy suggests the Fed needs to be in a hurry to cut interest rates in 2024. In a soft-landing scenario, the Fed only needs to trim rates in response to further easing in inflation pressures, just enough to maintain tight policy without loosening it."

Powell also stressed as well that's it's too early to be completely confident with the direction the economy is headed: "It's certainly possible that the economy will behave in an unexpected way. It has done that repeatedly through the post-pandemic period."