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A Guide to Doing Your Taxes for the Very First Time

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Filing taxes can be intimidating no matter how many times you’ve done it, but it can be especially challenging if it’s your first time.

What documents do you need to collect? What information do you need to report? What deadlines do you have to meet? What if you make a mistake?

It’s a lot to keep track of and there’s a fair amount at stake as well. Accurately filing your taxes will not only help you avoid potential penalties, but it will ensure that you get the maximum refund possible.

This article will guide you through the entire process so that you know how to successfully file your taxes for the first time.

How to decide whether you need to file a return

Not everyone needs to file a federal income tax return, though if you worked for any significant part of the year, it is likely that you do.

You generally need to file a tax return if you earned more than the standard deduction amount, which for 2018 is $12,000 for single filers, $24,000 for married couples filing jointly and $18,000 for anyone filing as head of household. If you’re claimed as a dependent on someone else’s tax return, such as your parents, you generally need to file a return if you made more than $1,050 during the year.

But even if you don’t meet those thresholds, there are still situations in which it may make sense to file a return.

“If you paid federal and state withholding taxes, you would need to file a return in order to potentially get a refund,” said Chris Panek, a CPA in Avon, Minn.

You also need to file a return to qualify for certain tax credits, such as the Earned Income Tax Credit (EITC), which can put a significant amount of money back in your pocket if you’re working but earning a low income.

At the end of the day, it’s often worth filing unless you’re absolutely certain that you don’t need to file and that you won’t qualify for a refund or any tax credits.

“There’s no risk to filing a return,” said Panek. “You need to file a return in order to potentially get a refund, and if you do file a return and didn’t need to, there shouldn’t be any risk at all.”

If you’d like some help deciding whether it’s worth filing a tax return, you can use the following tool provided by the IRS: Do I Need to File a Tax Return?

The tax filing deadlines you need to meet

April 15 is the standard tax filing deadline, but that date can be adjusted for weekends and holidays. In 2019, the tax filing deadline is April 17.

Meeting this deadline is critical because failure to file on time can have several negative consequences.

First, you may be subject to a failure-to-file penalty, which is typically calculated as up to 5% of your unpaid taxes for each month that you’re late, with a maximum penalty of 25% of your unpaid taxes.

Second, if you haven’t paid your taxes in full by the deadline, you may be subject to a penalty as well, typically calculated as 0.5%-1% of your unpaid taxes for each month that you’re late, though the combined failure-to-file penalty and failure-to-pay penalty can’t be more than 5% in any given month.

Finally, you won’t receive your refund or be able to claim tax credits unless you file. You do have three years from the original due date in order to file and claim a refund, but, again, waiting can subject you to penalties, and in any case receiving that refund earlier is better than receiving it later.

If, for whatever reason, you are having trouble filing an accurate return by the April 17 deadline, you are allowed to request an automatic six-month extension that gives you until Oct. 15 to file your return. There are no eligibility requirements to get an extension, and requesting an extension by April 17 will allow you to avoid the failure-to-file penalties as long as you meet that Oct.15 deadline.

It’s worth noting, however, that the extension only applies to the filing of your return and not to the payment of your tax liability. You still need to pay in full by April 17 in order to avoid the failure-to-pay penalty.

“I would highly recommend that you get your return done by April 15,” said Panek. “A lot of times people aren’t thinking about their taxes by the time extensions are due, and if you do owe money, that’s still due on April 15.”

How to collect and organize the necessary tax documents

One of the most confusing parts of filing your taxes, especially the first time around, is knowing which tax forms you need to collect, when you should expect to receive them and how to keep everything organized so that you’re ready when it’s time to put it all together.

The first step is to simply have a basic system for keeping everything organized so that whenever you do receive a document, you’ll have somewhere to keep it.

“I definitely recommend to clients, especially if they’re getting a lot of documents in the mail, that they keep a folder where they can keep them all,” said Panek. “Every time you receive something, put it in that folder and just let it accumulate so that when [you] start your return, you have all of it ready to go.”

According to Panek, most tax documents have to be sent out by Jan. 31. That includes W-2s that report your earned income from your employers, 1099-INTs that report interest earned on your bank accounts and 1099-DIVs that report dividend income earned from your investments.

Other forms you might need to collect, depending on your situation, include:

  • Form 1098 – Reports mortgage interest paid during the year.
  • Form 1099-MISC – Reports income earned as an independent contractor.
  • Forms 1095-A, B and C – Reports on your health insurance coverage.
  • Form 1098-E – Reports on student loan interest paid during the year.
  • Schedule K-1 – Reports income earned as part-owner of a business. According to Panek, these forms typically aren’t required to be sent out until March 15.
  • Receipts for charitable deductions, medical expenses and child care expenses that could potentially be deductible.

While you don’t want to wait until the last minute to file your taxes, Panek recommends that you do give it some time so that you can be sure you have everything you need before starting the process.

“You want to make sure that you have all your forms before you file so you don’t have to go back and amend that return,” said Panek. “Since everything is sent out by Jan. 31, it wouldn’t be beneficial to file your taxes before then unless you’re absolutely sure that you have all the forms you need.”

How to file your taxes

Once you’ve decided that you need to file a return and you’ve collected all the documents you think you’ll need, it’s time to file your taxes.

There are a few different ways to go about it, and the right choice depends on the specifics of your situation.

Option #1: IRS free e-file

If you make $66,000 or less, you are eligible to use the IRS’ free tax-filing software that guides you through the process of filling out the return. If you make more than $66,000, you can use the free fillable forms offered by the IRS, though you won’t have the benefit of software to guide you through them.

If your income is low enough to qualify for the free software, and if your overall tax situation is relatively simple, this option may be a no-brainer.

“This can be great if you have a simple return, meaning that you’re simply getting a W-2 from your employer and you potentially have some simple investments,” said Panek.

The fillable forms can also be useful, but Panek warns that since you don’t receive the same kind of guidance, it’s a better option for people who have a stronger foundation in taxes.

“A lot of people will use the free services when they understand the tax law,” said Panek. “But if you are filing a return and you’re not sure about what you should be entering in, I would seek out a professional tax preparer to help you out.”

Option #2: Tax preparation software

If you don’t qualify for the free IRS e-file option, and if your situation isn’t complicated enough to hire a professional tax preparer, paying for tax preparation software may be a good middle ground.

The cost of tax preparation software ranges from just a few dollars to almost $200, depending on the complexity of your situation. And while you don’t get the expertise of a professional reviewing your situation, you do benefit from more guidance than you would get if you filed your taxes on your own.

“The software will guide through some questions to help you understand what you need to report,” said Panek. “If you have a simple enough return and you feel comfortable with the software, it’s fine to do this on your own.”

Option #3: Professional tax preparer

If you have a complicated tax situation, are unsure about anything in your return, or if you’d like a little guidance about how to minimize your tax payments, it may be worth paying to work with a professional tax preparer.

“Whenever you feel that your tax return is getting more complicated, or you’re unsure of how you should be adjusting things within your tax return, I always suggest that you seek out a professional,” said Panek. “The nice thing is that they’ll be able to sit down with you and go more in-depth, and they may ask questions that otherwise wouldn’t come up.”

In addition to making sure that the current year’s return is done right, Panek said that a professional tax preparer could help you make decisions like how much to contribute to your employer retirement plan next year by showing you exactly how those contributions would affect your return. If you’re starting a business, a tax professional could also make sure that you set it up properly with a tax ID and help you understand which expenses are deductible.

The biggest downside to working with a professional is the cost. It can vary a lot depending on the type of professional you use and the scope of service you need, but it will almost certainly cost more than using tax preparation software.

Still, Panek says that in many cases, the cost will be worth it and that it may not be quite as burdensome as it seems on the surface.

“If you’re looking at something like TurboTax, the dollar amount that you’re spending on the software could go right to the person you’re paying to prepare your taxes,” said Panek. “A tax preparer can even first help you with the question of whether you need to file, and then you can decide whether you want to hire them to help you out.”

There are a number of factors to consider when hiring a tax preparer, and the IRS offers two useful resources to help you make a good decision:

When you can expect a refund

One piece of good news when it comes to filing taxes is that if you’re owed a refund, you will typically receive it fairly quickly. According to the IRS, most refunds are issued in less than 21 days and you can check the status of your refund within 24 hours of filing an electronic return.

“It varies in terms of how fast they come back and what you have going on in your tax return,” said Panek. “But I’ve had people who have gotten their refunds back by the next week.”

You can choose to receive your refund either via mail or by direct deposit into your bank account. According to the IRS, choosing direct deposit is both more secure and it allows you to get your refund quicker. You can even choose to split your refund among three different bank accounts if you’d like.

Of course, while it’s always nice to receive a big chunk of money all at once, there’s plenty of debate over the benefits of a refund compared with reducing your withholding so that you receive more money in your paychecks over the course of the year.

On the one hand, getting that refund can help you pay off debt, build savings or fund a college savings account in one fell swoop. On the other hand, a big refund means that you’ve essentially been loaning the government money for the past year, money that could have been yours to do with as you pleased.

“Some people that rely on that big refund because they’re not savers and they would rather have the government save that money for them,” said Panek. “Other people don’t want their money anywhere else. If there’s money that should be theirs, they want to be saving it themselves.”

“I personally like to get my clients as close to their actual tax liability as possible,” added Panek. “That way, they’re not getting a big refund and don’t owe a big tax bill.”

If, after filling out your taxes, you feel like your refund was either too big or too small, you can fill out a new W-4 and submit it to your employer so that they can adjust your withholding up or down. The IRS can help you figure out how to make those adjustments with their Paycheck Checkup tool.

Other common tax questions

Every tax situation is different, so you may still have questions even after reviewing all of the information above. The IRS offers a helpful FAQ that addresses many of the most common questions, and here are a few more answers that may point you in the right direction.

How will the new tax law affect me?

With the 2018 tax reforms in effect, one big question is how the new rules will affect your personal tax return.

The truth is that there are a lot of variables in every tax return, so there’s no way to say for certain how you will be affected. For example, a higher standard deduction will largely help people who don’t itemize their deductions, but a stricter limit on state and local tax deductions may hurt people in high-tax states, such as California and New York.

On the whole, income tax brackets have largely been decreased, which means that many people may see at least a small decrease in their tax bill compared with recent years. But the only way to know for sure is to do your taxes as accurately as possible and see where things land.

How can I reduce my tax liability?

There aren’t many ways to reduce your tax liability after Dec.31, but you do have until April 15 to make traditional IRA contributions for the prior year and those contributions are deductible on your tax return.

If eligible, you can contribute up to $5,500 to your IRA for 2018 (it’s $6,500 if you are age 50 or older). If you’re married, your spouse can potentially make another $5,500 contribution, allowing you to reduce your taxable income by as much as $11,000.

How do I pay taxes I owe?

If you file your return and find out that you owe taxes, remember that you have until April 17 to make that payment, or else you may be subject to penalties.

The IRS offers several different ways to pay, including paying directly from your bank account, by debit or credit card, or sending in a check.

What if I can’t afford to pay?

If you can’t afford to pay the taxes you owe, you can file an online payment agreement that may allow you to delay payment for up to 120 days or to create an installment plan so that you can make payments over time. You can also call the helpline at 800-829-1040 to discuss your options with a representative.

File without fear

Although filing your taxes for the first time can feel overwhelming and intimidating, the truth is that there’s not much to fear. The main potential penalties are associated with not filing, and as long as you meet the deadlines, there are ways to work with the IRS even if you owe money.

The keys to filing your return successfully are simply to be on the lookout for tax documents that come your way, keep them organized in a place where you’ll remember them and use whatever guidance you need in completing your return on time.

As long as you do those things, you should be just fine.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Matt Becker
Matt Becker |

Matt Becker is a writer at MagnifyMoney. You can email Matt here

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2019 Fed Meeting Predictions — No More Rate Hikes Until 2020

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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The March Fed meeting put the kibosh on more rate hikes in 2019. With FOMC policy on pause, market interest rates should hold steady (or even decline in some cases) for financial products you use every day. Read on for our predictions for each upcoming Fed meeting and updates on what went down at the most recent conclaves.

What happened at the March Fed meeting

The Federal Reserve signaled no rate hikes this year, and the possibility of only one increase in 2020. The Fed has pivoted pretty rapidly from its hawkish stance in 2018 to a more dovish outlook as it puts policy on ice. This change in tone grows directly from the FOMC’s observation of slowing growth in economic activity, namely household spending and business investment. The Fed also noted that employment gains have plateaued along with the unemployment rate, which nevertheless remains at very low levels.

So the federal funds rate looks to remain at 2.25% to 2.50% for a year or more, and the FOMC highlighted that this is the not-too-hot, not-too-cold level that for now best serves its dual mandate to “foster maximum employment and price stability.”

The Fed also released its Summary of Economic Projections (SEP). The March SEP indicated a median projected federal funds rate of 2.6% for 2020, which is why everybody is discussing the possibility of at least one, small increase next year.

For those who were really hoping for at least one more rate hike, all is not lost — Tendayi Kapfidze, LendingTree chief economist, believes we shouldn’t take March’s decision too gravely. “There are special factors that suggest the economy could reaccelerate,” he says. “The government shutdown threw a wrench into things, slowing some activity and distorting how we measure the economy.” He also remarks that since the financial crisis, data in the first quarter has continued to come in weak, still leaving room for everything to reaccelerate in the second and third quarters. He points to the already strong labor market as a plus.

Fed economic forecasts hint at a possible rate cut by the end of 2019. Just as the Fed projects a slightly higher federal funds rate in 2020, it also posted a projected 2.4% for 2019. Note that this projected rate falls below the upper end of the current rate corridor of 2.5%. This means the doves may want to see a possible rate cut if improvements in the economic outlook don’t materialize by mid-year.

When asked about this potential rate cut, Fed Chair Jerome Powell emphasized the Committee’s current positive outlook, while also emphasizing that it remains mindful of potential risks. Still, he maintained that “the data are not currently sending a signal that we need to move in one direction or another.” He also remarked that since it’s still early in the year, they have limited and mixed data to consult.

Kapfidze offers a more concretely positive outlook, noting that the chances of a rate cut are pretty slim. “To get a rate cut, you’d have to have sustained growth below 2%. There would have to be further weakness in the economy, like if trade deals get messier, to warrant a rate cut.”

The Fed downgraded its economic outlook for 2019 for the second time in recent months. In line with Kapfidze’s predictions, we did see a weaker economic outlook coming out of this month’s Fed meeting. The median GDP forecast for 2019 and 2020 decreased from December projections, while it remained the same for 2021 and beyond. This comes hand in hand with the decreased fed funds rate projections.

The FOMC increased their unemployment projections, which Kapfidze found surprising because the labor market has been so strong. “Maybe they believe that those numbers indicate a deceleration,” he said, “but really, it has to be consistent considering the other changes that they made.”

Why the Fed March meeting is important for you

It’s easy to let all of this monetary policy talk go in one ear and out the other. But what the Fed does or doesn’t change has an impact on your daily life. Without a rate hike since December, we’re already starting to see mortgage rates fall. This is helpful not only for those who want to buy a home, but also for those who bought homes at last year’s highs to refinance.

As for personal loans and credit cards, we may still see these rates continue to increase, just at a slower rate. These rates have little chance of decreasing because lenders may take the current weaker economic data as a sign that the economy is going to be more risky.

Deposit accounts will feel the opposite effects as banks may start to cut savings account rates. At best, banks will keep their rates where they are for now, until more evidence for a rate cut arises.

Our March Fed meeting predictions

There’s little chance of a rate hike this time around. In a policy speech on March 8, Fed Chair Jerome Powell reinforced the FOMC’s patient approach when considering any changes to the current policy, indicating he saw “nothing in the outlook demanding an immediate policy response and particularly given muted inflation pressures.”

This is no different from what we heard back in January, when the Fed took a breather after its December rate hike. There was no change to the federal funds rate at that meeting, and Powell had stressed that the FOMC would be exercising patience throughout 2019, waiting for signs of risk from economic data before making any further policy changes.

Further strengthening the case for rates on hold, the reliably hawkish Boston Fed President Eric Rosengren cited several reasons that “justify a pause in the recent monetary tightening cycle,” in a policy speech on March 5. His big tell was citing the lack of immediate signs of strengthening inflation, which remains around the Fed’s target rate of 2%.

Even though there had been some speculation of a first quarter hike at the March Fed meeting, LendingTree chief economist Tendayi Kapfidze reminds us that the Fed remains, as ever, data-dependent. “The latest data has been on the weaker side, with the exception of wage inflation,” he says.

The economic forecast may be weaker than December’s. The Fed will release their longer-range economic predictions after the March meeting. These projections should include adjustments in the outlook for GDP, unemployment and inflation. The Fed will also provide its forecast for future federal funds rates.

Kapfidze expects we’ll see a weaker forecast this time around than what we saw in December. “I except the GDP forecast to go down, and the federal funds rate expectations to go down.” This follows a December report that posted lower numbers than the September projections.

Despite flagging economic projections, Rosengren offered a steady outlook in his speech. “My view is that the most likely outcome for 2019 is relatively healthy U.S. economic growth,” he said, again attributing this to “inflation very close to Fed policymakers’ 2 percent target and a U.S. labor market that continues to tighten somewhat.”

The Fed’s economic predictions offer clues to its future policy decisions. In September, the Fed projected a 2019 federal funds rate of 3.1%. That number dropped to 2.9% in the December report. With the current rate at 2.25% to 2.5%, there’s still room for more hikes this year. Keep in mind, however, that, the March meeting may narrow projections for the rest of 2019.

As for Kapfidze, he thinks we’ll see a rate hike in the second half of the year. “If wage inflation continues to increase and it trickles more into the economy, the Fed could choose to raise rates due to that risk.”

However, as of March 12, markets see the odds of a rate hike this year at zero, while the odds of a federal funds cut has risen to around 20%, based the Fed Fund futures.

Upcoming Fed meeting dates:

Here is the FOMC’s calendar of scheduled meetings for 2019. Each entry is tentative until confirmed at the meeting proceeding it. For past meetings, click on the dates below to catch up on our pre-game forecast and after-action report.

Our January Fed meeting predictions

Don’t expect a rate hike. The FOMC ended the year with yet another rate hike, raising the federal funds rate from 2.25 to 2.5%. It was the committee’s fourth increase of 2018, which began with a rate of just 1.5%.

But the January Fed meeting will likely be an increase-free one. Tendayi Kapfidze, chief economist at LendingTree, the parent company of MagnifyMoney, said the probability of a rate hike is “basically zero.”

Kapfidze’s assessment is twofold. First, he noted that the Fed typically announces rate increases during the third month of each quarter, not the first. This means a hike announcement would be much more likely during the FOMC’s March 19-20 meeting, rather than in January.

Perhaps more importantly, Kapfidze said there’s been too much market flux for the FOMC to make a new decision on the federal funds rate. He predicts the Fed will likely wait for more evidence before it considers another rate hike.

“I think a lot of it is a reaction to market volatility, and therefore that’s lowered the expectations for federal fund hikes,” Kapfidze said.

But if a rate hike is so unlikely, what should consumers expect from the January Fed meeting? Here are three things to keep an eye on.

#1 The frequency of rate hikes moving forward

It’s unclear when the next increase will occur, but the FOMC’s post-meeting statement could give a clearer picture of how often rate hikes might occur in the future.

The Fed released its latest economic projections last month, which predicted the federal funds rate would likely reach 2.9% by the end of 2019. This figure was a decline from its September 2018 projections, which placed that figure at 3.1%.

As a result, many analysts — Kapfidze included — are forecasting a slower year for rate hikes than in 2018. Kapfdize said some analysts are predicting zero increases, or even a rate decrease, but he believes that may be too conservative.

“I still think the underlying economic data supports at least two rate hikes, maybe even three,” Kapfidze said.

Kapfidze’s outlook falls more in line with the Fed’s current projections, as it would mean two rate hikes of 0.25% at some point this year. There could be more clarity after the January meeting, as the FOMC’s accompanying statement will help indicate whether the Fed’s monetary policy has changed since December.

#2 An economic forecast for 2019

The FOMC’s post-meeting statement always includes a brief assessment of the economy, and this month’s comments will provide a helpful first look at the outlook for 2019.

Consumers will have to wait until March for the Fed’s full projections — those are only updated after every other meeting — but the FOMC will follow its January gathering with its usual press release. This statement normally provides insight into the state of household spending, inflation, the unemployment rate and GDP growth, as well as a prediction of how quickly the economy will grow in the coming months.

At last month’s Fed meeting, the committee found that household spending was continuing to increase, unemployment was remaining low and overall inflation remained near 2%. Kapfidze expects January’s forecast to be fairly similar, as recent market fluctuations might make it difficult for the FOMC to predict any major changes.

Read more: What the Fed Rate Hike Means for Your Investments

“I wouldn’t expect any significant change in the tone compared to December,” Kapfidze said. “I think they’ll want to see a little more data come in, and a little more time pass.”

At the very least, the statement will let consumers know if the Fed is taking a patient approach to its analysis, a decision that may help indicate just how volatile the FOMC considers the economy to be.

#3 A response to the government shutdown

The big mystery entering January’s Fed meeting is the partial government shutdown. While Kapfidze said the FOMC’s outlook should be similar to December, he also warned that things could change quickly if Congress and President Trump can’t agree on a spending bill soon.

“The longer it goes on, and the more contentious it gets, the less confidence consumers have — the less confidence business have. And a lot of that could translate to increased financial market volatility,” Kapfidze said.

Kapfidze added that the longer the government stays closed, the more likely the FOMC is to react with a change in monetary policy. During the October 2013 shutdown, for example, the Fed’s Board of Governors released a statement encouraging banks and credit unions to allow consumers a chance at renegotiating debt payments, such as mortgages, student loans and credit cards.

“The agencies encourage financial institutions to consider prudent workout arrangements that increase the potential for creditworthy borrowers to meet their obligations,” the 2013 statement said.

What happened at the January Fed meeting:

No rate hike for now

In its first meeting of 2019, the Federal Open Market Committee announced it was keeping the federal fund rate at 2.25% to 2.5%, therefore not raising the rates, as widely predicted. This decision follows much speculation surrounding the economy after the Fed rate hike in December 2018, which was the fourth rate hike last year. In its press release, the FOMC cited the near-ideal inflation rate of 2%, strong job growth and low unemployment as reasons for leaving the rate unchanged.

In the post-meeting press conference, Federal Reserve Chairman Jerome Powell confirmed that the committee feels that its current policy is appropriate and will adopt a “wait-and-see approach” in regards to future policy changes.

Read more: How Fed Rate Hikes Change Borrowing and Savings Rates

Impact of government shutdown is yet to be seen

The FOMC’s official statement did not address the government shutdown in detail, although it was discussed briefly in the press conference that followed. Powell said he believes that any GDP lost due to the shutdown will be regained in the second quarter, providing there isn’t another shutdown. Any permanent effect would come from another shutdown, but he did not answer how a shutdown might change future policy.

What the January meeting bodes for the rest of the year

Don’t expect more rate hikes. As for what this decision might signal for the future, Powell maintains that the committee is “data dependent”. This data includes labor market conditions, inflation pressures and expectations and price stability. He stressed that they will remain patient while continuing to look at financial developments both abroad and at home. These factors will help determine when a rate adjustment would be appropriate, if at all. When asked whether a rate change would mean an increase or a decrease, he emphasized again the use of this data for clarification on any changes. Still, the Fed did predict in December that the federal funds rate could reach 2.9% by the end of this year, indicating a positive change rather than a negative one.

CD’s might start looking better. For conservative savers wondering whether or not it’s worth it to tie up funds in CDs and risk missing out on future rate hikes – long-term CDs are looking like a safer and safer bet, according to Ken Tumin, founder of DepositAccounts.com, another LendingTree-owned site. Post-Fed meeting, Tumin wrote in his outlook, “I can’t say for sure, but it’s beginning to look more likely that we have already passed the rate peak of this cycle. It may be time to start moving money into long-term CDs.”

Look out for March. Depending on who you ask, the FOMC’s inaction was to be expected. As Tendayi Kapfidze, LendingTree’s chief economist, noted [below], if there is going to be a rate increase this quarter, it will be announced in the FOMC’s March meeting. We will also have to wait for the March meeting to get the Fed’s full economic projections. For now, its statement confirms that household spending is still on an incline, inflation remains under control and unemployment is low. It also notes that growth of business fixed investment has slowed down from last year. As for inflation, market-based measures have decreased in recent months, but survey-based measures of longer-term inflation expectations haven’t changed much.

 

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Learn more: What is the Federal Open Market Committee?

The FOMC is one of two monetary policy-controlling bodies within the Federal Reserve. While the Fed’s Board of Governors oversees the discount rate and reserve requirements, the FOMC is responsible for open market operations, which are defined as the purchase and sale of securities by a central bank.

Most importantly, the committee controls the federal funds rate, which is the interest rate at which banks and credit unions can lend reserve balances to other banks and credit unions.

The committee has eight scheduled meetings each year, during which its members assess the current economic environment and make decisions about national monetary policy — including whether it will institute new rate hikes.

A look back at 2018

Before the FOMC gathers this January, it’s worth understanding what the Fed did in 2018, and how those decisions might affect future policy.

The year 2018 was the Fed’s most aggressive rate-raising year in a decade. The FOMC’s four rate hikes were the most since the 2008 Financial Crisis, after the funds rate stayed at nearly zero for seven years. This approach was largely based on the the FOMC’s economic projections, which found that from 2017 to 2018 GDP grew, unemployment declined and inflation its Fed-preferred rate of 2%.

In addition to the rate hikes, the FOMC also continued to implement its balance sheet normalization program, through which the Fed is aiming to reduce its securities holdings.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Dillon Thompson
Dillon Thompson |

Dillon Thompson is a writer at MagnifyMoney. You can email Dillon here

Lauren Perez
Lauren Perez |

Lauren Perez is a writer at MagnifyMoney. You can email Lauren here

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