WASHINGTON – The Federal Reserve left its key short-term interest rate unchanged again Wednesday, hinted that rate hikes are likely over and forecast three cuts next year amid falling inflation and a cooling economy.

That’s more rate cuts than many economists expected.

The decision leaves the Fed’s benchmark short-term rate at a 22-year high of 5.25% to 5.5% following a flurry of rate increases aimed at subduing the nation’s sharpest inflation spike in four decades. The central bank has now held its key rate steady for three straight meetings since July.

That provides another reprieve for consumers who have faced higher borrowing costs for credit cards, adjustable-rate mortgages and other loans as a result of the Fed’s moves. Yet Americans, especially seniors, are finally reaping healthy bank savings yields after years of paltry returns.

In recent weeks, with inflation slowing more emphatically and the economy and job market cooling, talk has shifted from whether the Fed would hike again to how rapidly it will trim rates next year.

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Will the Fed raise interest rates again?

The central bank didn’t rule out another rate increase as it downgraded its economic outlook for next year while lowering its inflation forecast. In a statement after a two-day meeting, it repeated that it would assess the economy and financial developments, among other factors, to determine “the extent of any additional (rate hikes) that may be appropriate to return inflation to 2% over time.”

By adding the word “any,” however, Fed officials underscored there’s a reasonable chance it won’t have to raise rates again, though it stands ready to do so if necessary.

'Not likely we will hike again'

"It's not likely we will hike again," Fed Chair Jerome Powell said at a news conference, noting the Fed's key rate is "at or near its peak."

But he said the economy has surprised officials with its strength recently, adding that officials "didn't want to take the possibility of additional hikes off the table."

Will the Fed lower rates in 2024?

Perhaps more significantly, Fed officials estimate they’ll lower the federal funds rate by three-quarters of a percentage point to a range of 4.5% to 4.75% next year, according to their median estimate. That amounts to three quarter-point cuts, more than many economists expected and the number the Fed expected in September but fewer than the full percentage point drop that markets anticipated.

Sometimes, the Fed reduces rates to dig the economy out of a downturn. Next year, economists believe officials will cut simply to bring borrowing costs closer to normal as inflation eases. Otherwise, inflation-adjusted rates would rise.

"It's really good to see the progress we're making" on inflation, Powell said. "Inflation keeps coming down, the labor market keeps coming into balance. So far, so good."

But, he added, "It is far too early to declare victory and there are certainly risks."

Some economists say the Fed is still underestimating how quickly inflation will come down next year and how sharply it will slash rates.

"We're sticking to our view that the Fed will cut faster than this," with 1.5 percentage points in decreases, starting in March or May, Ian Shepherdson, chief economist of Pantheon Macroeconomics, wrote in a note to clients. "We think inflation will fall faster than they expect."

Why is the 10-year Treasury yield falling?

The Fed may be reluctant to foresee too swift a rate decrease because of the market rally and recent drop in the 10-year Treasury yield to 4.1%, developments that could strengthen the economy and inflation. When the Fed last met in early November, stocks were at a low point and the 10-year Treasury had reached 5% for the first time since 2007, driving up mortgage rates and corporate borrowing costs.

On Wednesday, the S&P 500 closed up 1.37% while the Dow Jones Industrial Average closed at a record high after rising 1.4% following the Fed's signals that it's probably done lifting rates and is forecasting three cuts next year. The 10-year Treasury was down to about 4% from 4.21% on Tuesday.

Last month, Powell said high Treasury yields, if persistent, likely would constrain the economy and require fewer Fed rate increases,

In its statement Wednesday, however, the central bank didn’t acknowledge the recent decline in Treasury yields, suggesting yields are still relatively high and could spike again, crimping the economy.

“Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation,” the Fed said, repeating the language of its previous statement.

Is inflation really slowing down?

The Fed’s middle-ground approach may have been cemented Tuesday by a mixed report on the consumer price index. The good news was that overall inflation barely budged in November amid falling gasoline prices, pushing down annual price gains to 3.1% from 3.2%, still well above the Fed’s 2% goal.

But a core measure that strips out volatile food and energy items and that the Fed watches more closely rose a sturdy 0.3% on a monthly basis, keeping the yearly rise at 4%. That underlying measure could stay elevated for several months on climbing services costs, economists say.

And while the Fed predicted Wednesday that inflation will slow a bit more rapidly than previously thought, it also expects the economy and job market to stay more resilient despite high inflation and interest rates. That could help the U.S. avoid a recession but it also boosts the risk of a resurgence in inflation, especially if the Fed slices rates too rapidly.

Will inflation get better in 2024?

Fed officials expect their preferred measure of annual inflation, the personal consumption expenditures index, to fall from 3% in October to 2.4% at the end of 2024, below their 2.5% projection in September.

The core measure is expected to decline from 3.5% to 2.4% by the end of next year, below the prior 2.6% estimate.

What is the economic forecast for 2024?

The Fed expect the economy to grow at a 2.6% annual rate, above its prior 2.1% estimate. But it predicts just 1.4% growth in 2024, down slightly from its prior 1.5% projection.

The economy grew a torrid 5.2% in the third quarter but growth is projected to slow to less than 2% late this year and in 2024 as high interest rates, record credit card debt and dwindling COVID-related savings crimp household spending.

Will the job market get better in 2024?

The historically low 3.7% unemployment rate is projected to end 2024 at 4.1%, in line with the September forecast. Average monthly job growth has downshifted from about 300,000 early this year to a still solid 200,000.

And average yearly wage gains have tumbled to 4% from 5.9% since spring of last year. The Fed wants to lower pay increases to 3.5% to align with its 2% inflation target.

But Barclays says wage growth could decline more slowly now that a rebound in immigration may have peaked. Immigration moderates wage gains by expanding the labor supply.

That’s another potential reason for the Fed to be leery about cutting rates too quickly.

Want to learn more? USA TODAY explains the news on interest rates. For more answers to your questions about today's report and other economic trends, keep reading:

Is the Federal Reserve part of the government?

Yes. The Federal Reserve System is the U.S.’s central bank.

When does the Fed meet again?

The first Federal Reserve meeting of the new year will be from Jan. 30 through 31.

Federal reserve calendar

• 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

Fed dot plot

The Fed’s dot plot can be found in the Fed's Summary of Economic Projections report. It’s an illustration of where individual Fed officials forecast interest rates will be years down the line. The dot plot was first created in late 2011 and was meant to give more transparency to the Fed's decisions when it came to monetary policy.

The most recent forecast for the fund rate is 5.5% to 5.75% by the end of this year, and 5% to 5.25% by the end of 2024.

How is the U.S. economy doing?

The U.S. economy was strong in the third quarter as consumers continued to spend despite high interest rates and inflation.

The value of all services and products generated in the U.S., or GDP, rose at a seasonally adjusted 4.9% for the year in the months spanning July to September, according to the Commerce Department. That was more than twice the 2.1% increase in the previous quarter and the most aggressive pace of growth since the end of 2021 when the economy surged back from a recession sparked by the pandemic.

How likely is a recession in 2024?

Economists surveyed in September said there was a 48% chance the U.S. will slip into a recession over the next year, down from the 61% odds forecast in May.

Barclays predicted a loss of roughly 375,000 jobs by the middle of next year. But consumer spending remains robust despite high inflation and interest rates that are making credit card use and consumer loans more expensive. And that may help stave off a recession, says Barclays economist Jonathan Millar.

What does FOMC stand for?

The FOMC is the Federal Open Market Committee, the voting body responsible for setting interest rates. The 12-member committee includes seven members of the Board of Governors and five of the 12 Reserve Bank presidents.

What causes inflation?

Inflation can have many roots. Typically, it’s caused by "a macroeconomic excess of spending over the economy's relative ability to produce goods and services," said Josh Bivens, the director of research at the Economic Policy Institute, a left-leaning think tank based in Washington D.C.

That means more people are wanting items and services than there is adequate supply, leading producers to raise prices.

"If everyone in the economy, tomorrow, decided they weren't going to save any money from their paychecks, and they're just going to spend every last dollar out of the blue, they would all run to the stores and try to buy things," Bivens said. "But, producers haven't produced enough to accommodate that big surge of across-the-board spending. So, you would see prices bid up."

Inflation can also happen when there are too few producers, or there aren’t enough employees to provide the coveted products and services, Bivens said.

Finally, economies also have some "built-in inflation" to help keep inflation in check. In the U.S., that target is 2%, meaning businesses can raise prices 2% annually year and that shouldn’t overburden consumers. That’s also the typical cost of living raise offered by employers.

Inflation meaning

Inflation is the term for a "generalized rise in prices," according to Josh Bivens, head of research at the Economic Policy Institute, a left-leaning think tank based in Washington D.C.

Everything from food to rent can become costlier due to inflation. But it is the overall impact that determines what the inflation rate actually is.

"Inflation, though, really is meant to only refer to all goods and services, together, rising in price by some common amount," Bivens said. The Federal Reserve’s inflation goal is 2%, which means businesses can hike prices by 2% a year and that shouldn’t cause consumers financial distress. Cost of living increases to workers’ pay are also expected to meet that target to ensure consumers can adequately deal with the rising costs of goods and services.

What is CPI?

In November, the Consumer Price Index (CPI) ? a measure of the average shift in prices for different products and services ? was 3.1%, down slightly from the month before.

Annual inflation is down dramatically from the 9.1% in June 2022 that marked a 40-year high but remains above the 2% target the Fed sees as the level that signals the rate of price increases is under control.

Why is CPI important?

The Federal Reserve watches two key aspects of the economy, price stability and maximum employment, and those are the main factors it takes into account for its interest rate decisions. The CPI is a primary measure the Fed looks at to help determine if prices are “stable.’’

What is the difference between CPI and core CPI?

Core prices don’t count the volatile costs of food and energy items, giving a more accurate window into longer-term trends.

Are wages going up in 2024?

If you’re deemed a top performer at a company that is offering raises, you’ve got a pretty good chance of getting a pay boost next year.

About 3 out of four business leaders told ResumeBuilder.com they intended to give raises. But half of those company executives said only 50% or less of their staff members would see a pay hike, and 82% of the raises would hinge on performance. For those who do manage to get the salary boost, 79% of employers said the pay hikes would be greater than those given in recent years.

Are U.S. Treasury yields rising?

Not recently.

The 10-year Treasury yield was above 5% in November when the Fed kept rates steady for the second consecutive month the first time it had left the key rate unchanged two months in a row in almost two years.

That led to mortgage rates spiking to almost 8% and pushed up other borrowing costs for consumers and businesses. Stocks meanwhile sank close to a recent low, leading Fed Chair Jerome Powell to say such financial pressures could achieve the same cooling effect on the economy as additional rate hikes.

But in the following weeks, 10-year Treasury yields dipped to 4.2% and stocks rebounded. That might make the Fed resist rate cuts in case the economy heats up and causes the broader dip in prices “to stall at an uncomfortably elevated level,” Barclays says.

Barclays and Goldman Sachs forecast that rate cuts won’t happen until the spring, and that there will be only two, to a range of 4.75% to 5%, with more cuts implemented in the next two years.

When will inflation go back to normal?

It may take a little while.

Inflation’s decline likely “won’t show much progress in coming months,” Barclays wrote in a research note.

Overall price hikes have eased significantly since peaking at 9.1% in June 2022, a four-decade high. And in October, broader inflation as well as core prices experienced a dip, leading to a lower 10-year Treasury yield.

But core prices, which exclude the volatile costs of food and energy, will probably rise 0.3% each of the next three months, Goldman Sachs says. Used cars and furniture have been getting cheaper as the supply-chain shortages of the pandemic end. Meanwhile, health care, auto repairs, car insurance and rent continue to get more expensive, as employers pay higher wages to attract workers amid a labor shortage lingering from the global health crisis.

What is core inflation right now?

Core prices, which leave out the more volatile costs of food and energy, bumped up 0.3% in November, slightly more than the 0.2% uptick seen the previous month. That kept the yearly increase at 4%, the lowest rate since September 2021.

New inflation tax brackets

Inflation may also impact the amount of taxes you have to pay.

The Internal Revenue Service said in its annual inflation adjustments report that there will be a 5.4% bump in income thresholds to reach each new level in next year’s tax season.

In 2024, the lowest rate of 10% will apply to individuals with taxable income up to $11,600 and joint filers up to $23,200. The top rate of 37% will apply to individuals earning over $609,350, and married couples filing jointly who make at least $731,200 a year.

The IRS makes these adjustments annually, using a formula based on the consumer price index to account for inflation and stave off "bracket creep," which happens when inflation shifts taxpayers into a higher bracket though they’re not seeing any real rise in pay or purchasing power.

The 2024/25 increase is less than last year's 7% increase, but much more than recent years when inflation was below the current 3.1% inflation rate.

Will Social Security get a raise because of inflation?

Yes, but it will be a lot less than what recipients received in 2023.

The cost-of-living adjustment, or COLA, to Social Security benefits will be 3.2% next year. That’s roughly one-third of the 8.7% increase given in 2023, which marked a forty-year high.

The 2024 COLA hike is above the average 2.6% raise recipients have received over the past two decades, but seniors remain concerned about being able to pay their expenses as well as the increasing possibility Social Security benefits will be reduced in coming years, according to a retirement survey of 2,258 people by The Senior Citizens League, a nonprofit seniors group.

How does raising rates lower inflation?

The federal funds rate is what banks pay each other to borrow overnight. If that rate increases, banks usually pass along that extra cost, meaning it becomes more expensive for businesses and consumers to borrow as rates rise on credit cards, adjustable rate mortgages and other loans. That’s why the funds rate is the key mechanism used by the Federal Reserve to calm inflation.

Simply put, companies and consumers don’t borrow as much when loans cost them more, and that means an overheated economy can cool and inflation may dip.

Will credit card interest rates continue to rise this holiday season?

The Fed’s string of rate hikes, aimed at easing the highest inflation in four decades, are a big reason credit card interest rates have reached record highs just in time for the holiday season.

Some retail credit cards now charge more than 33% interest, topping a 30% threshold that stores and banks were previously able to bypass but seldom did - until now.

“They can charge that much,” said Chi Chi Wu, a senior attorney at the nonprofit National Consumer Law Center. “Credit cards can actually charge whatever they want. It’s a little-known fact.”

The domino effect of a high benchmark rate and soaring credit card interest could put many Americans in financial straits this holiday season.

Though some consumers are paring back to deal with high prices, rising debt and shrinking savings, the average shopper expects to spend $1,652 this year on holiday purchases, according to the consultancy Deloitte, more than was typically spent in the last three years.

A lot of the buying will be done with credit cards. In an October poll of 1,036 shoppers by CardRates.com, nearly 4 in 10 respondents said they intend to have holiday credit card debt in the new year.

The nation’s collective credit card debt was $1.08 trillion, at the end of September, a record high. And the average interest rate was 21%, the highest ever documented by the Federal Reserve.

Savings account impact of high rates

The upside to the Fed’s string of rate hikes has been that consumers were able to earn good interest on their savings for the first time in years. Even when the Fed leaves interest rates unchanged, savers can do well.

Unfortunately, most account holders aren’t making the most of that potential opportunity.

Roughly one-fifth of Americans who have savings accounts don’t know how much interest they’re earning, according to a quarterly Paths to Prosperity study by Santander US, part of the global bank Santander. Among those who did know their account’s interest rate, most were earning less than 3%.

But consumers have time to make a change that could enable them to make more from their savings.

"We’re still a long way from (the Fed) beginning to cut rates,” said Greg McBride, chief financial analyst at financial services platform Bankrate. “This is great news for savers, who will continue to enjoy inflation-beating returns in the top-yielding, federally insured online savings accounts and certificates of deposit. For borrowers, interest rates staying higher for a longer period underscores the urgency to pay down and pay off costly credit card debt and home equity lines."

Amid inflation, Americans seek higher credit card limits

The string of Fed rate hikes that began in March 2022 has made it costlier for consumers to borrow as interest rates on credit cards and other loans increased dramatically.

At the same time, inflation has made daily needs more expensive, pushing more Americans to lean on credit cards to get by. But lenders have become more reluctant to issue new cards, so in the midst of the holiday season, more shoppers are seeking higher credit limits, experts say.

In October, the application rate for higher limits rose to 17.8% from 11.2% in the same month the previous year, and from 12.0% in 2019, New York Fed data showed.

For some consumers, a higher limit on a card they already have is about their only option.

“After COVID, inflation and interest rates went out of control ... people have less emergency funds for car repairs or buying presents," said Brandon Robinson, president and founder of JBR Associates, which specializes in retirement strategies. "What they’re doing is using more credit card utilization – over 30% or well over 50% of their credit card allowance – and then can’t get approved for another card because their credit rating is down."

Inflation is leading more Americans to work multiple jobs

The number of Americans working at least two jobs is at its highest peak since before the COVID-19 pandemic, according to federal data, an uptick that may reflect the financial pressure people are feeling amid high inflation.

Almost 8.4 million people had multiple jobs in October, the Labor Department said, a figure that represents 5.2% of the laborforce, the highest percentage since January 2020.

“Paying for necessities has become more of a challenge, and affording luxuries and discretionary items has become more difficult, if not impossible for some, particularly those at the lower ends of the income and wealth spectrums,” Mark Hamrick, senior economic analyst at Bankrate, told USA TODAY in an email.

People may also be moonlighting to sock away cash in case they’re laid off since job cuts typically peak at the start of a new year.

When will Fed meet?: What is the Federal Reserve's 2024 meeting schedule? Here is when the Fed will meet again.

What is the mortgage interest rate today?

Mortgage rates are falling, so is it time to buy?

It depends.

First of all, the Fed doesn’t directly set mortgage rates, but its actions have an impact. For instance, when the central bank was steadily boosting its key rate, the yield on the 10-year treasury bond went up as well. Because those bonds are a gauge for the interest applied to an average 30-year loan, mortgage rates increased.

But over the past six weeks, mortgage rates have been declining, averaging 7% for a 30-year fixed mortgage. That’s down from almost 7.8% at the end of October, according to data released by Freddie Mac on Dec. 7.

That may be giving some wannabe homeowners the confidence to start house hunting. For the week ending Dec. 1, mortgage applications rose 2.8% from the prior week, according to the Mortgage Bankers Association.

“However, in the big picture, mortgage rates remain pretty high,” says Danielle Hale, senior economist for Realtor.com. “The typical mortgage rate according to Freddie Mac data is roughly in line with what we saw in August and early to mid-September, which were then 20 plus year highs.”

So, many potential buyers may still need to sit on the sidelines, waiting for rates to drop further, says Sam Khater, chief economist for Freddie Mac. Hale and many other experts believe mortgage rates will dip next year.

Interest rate projection 2024

The Fed is expected to cut interest rates next year, though markets and economists disagree about how many rate cuts there will be.

Futures markets forecast there will be four or five rate cuts in 2024, amounting to a quarter of a percentage point each. The cuts, they predict, should start by spring, and ultimately drop interest rates as low as 4% to 4.25%.

But core prices, which leave out the volatile costs of food and energy and are the metric followed more closely by the Fed, ticked up 0.3% in November, higher than the 0.2% increase the month before. That might make the Fed more hesitant to nip rates in the immediate future.

Goldman Sachs and Barclays expect there to be only two rate decreases in 2024. And Fed Chair Jerome Powell has cautioned in recent public remarks that it was “premature” to talk about rate cuts.

November inflation report

Inflation dipped slightly last month, with falling gas prices mitigating the impact of rising rents.

Consumer prices overall increased 3.1% from a year earlier, slightly below the 3.2% rise in October, according to the Labor Department’s consumer price index. That slower pace moves the inflation rate nearer to the level, reached in June, that was the lowest in over two years. Month over month, prices increased a slight 0.1%.

Core prices, however, which leave out the more erratic costs of food and energy and which are more closely monitored by the Fed, increased 0.3% in November after rising 0.2% the previous month. That means core inflation’s yearly increase remained at 4%, though it’s the lowest level since September 2021.

This article originally appeared on USA TODAY: Fed stands pat on interest rates again, predicts 3 rate cuts in 2024