The Federal Reserve is anticipated to cut interest rates for the second time this year on Thursday, a move following closely on the heels of a significant reduction last September. Economists forecast a 0.25 percentage point decrease in borrowing costs, which is half of September’s reduction, according to a FactSet poll. This adjustment will likely lead to a new federal funds rate range of 4.5% to 4.75%, down from its current level of 4.75% to 5%. This rate is crucial as it sets the interest rate banks charge each other for overnight loans. The Fed’s decision is influenced by the recent drop in its preferred inflation measure to 2.1%, nearing the Fed's target of 2%.
Following a period of high inflation triggered by the pandemic, the Fed is now easing restrictions. High-interest rates have previously made consumer purchases, such as homes and cars, more costly. The anticipated rate cut, though initially offering modest relief, may gradually result in significant savings for borrowers as the Fed is expected to continue rate reductions in upcoming meetings. Experts, like Matt Schulz from LendingTree, suggest that while the immediate impact may be minimal, further cuts could lead to noticeable savings for those grappling with debt. According to Gregory Daco, EY's chief economist, a 0.25 percentage point rate cut is expected after the election, adding to the September adjustments.
This ongoing strategy could see the rates drop to 4.4% in December and 3.4% by June 2025. The decision by the Fed will be announced at 2 p.m. ET on November 7, with Fed Chair Jerome Powell scheduled for a subsequent press conference at 2:30 p.m. The next rate announcement is slated for December 18. Looking ahead to 2024, the Fed anticipates cutting rates further, aiming for a range between 4.25% and 4.5% by December, a significant reduction from its earlier two-decade high. However, this does not guarantee an equivalent drop for mortgage or other borrowing costs, as lenders often set their terms above the federal funds rate to maintain profit margins.
Despite these cuts, current trends show mortgage rates on the rise, with the average 30-year fixed-rate loan interest climbing to approximately 6.72%, up from 6.08% in September, per Freddie Mac statistics. The Fed’s rate policy, while impactful, intersects with other economic factors, such as unemployment rates and Treasury yields, which influence home borrowing costs. Concerns around U.S. debt levels and pending presidential elections have driven Treasury yields higher, complicating the outlook for mortgage rates. Jacob Channel, a senior economist at LendingTree, notes that investor concerns about future uncertainties are causing challenges for Treasury yields and mortgage rates in maintaining lower levels.
In this atmosphere of flux, credit card rates have seen slight declines but remain high, leading to only nominal impacts on monthly billing for consumers. Unless the Fed accelerates rate cuts significantly, substantial reductions in consumer borrowing costs will take time to materialize.
