Borrowers barely felt interest rates budge after the Fed’s first rate cut back in September, and they’re not about to get a big bang for their buck Thursday when the Federal Reserve makes its next move.
Many economists and Fed watchers expect the central bank to lower short term interest rates by a quarter of a percentage point Thursday — the second rate cut in what’s projected to be a string of rate reductions in the next year or so.
Currently, Goldman Sachs economics research is penciling in another four consecutive interest rate cuts in the first half of 2025 but also acknowledged in its Monday update that more uncertainty exists regarding the Fed’s path next year.
Inflation has cooled significantly from its peak more than two years ago. We’re nowhere close to the 9.1% inflation spike that hit in June 2022 — the highest level in 40 years.
The consumer price index was up 2.4% in September year over year. It was the smallest 12-month gain since February 2021. The CPI for October will be released Nov. 13.
The Fed raised short term rates 11 times to fight inflation, and now the Fed is on a path to cut rates after inflation has moderated.
A quarter-point cut would bring the federal funds rate down to a range of 4.5% to 4.75%. The short-term federal funds rate is the interest rate used for overnight loans among banks but it plays a huge role in influencing many interest rates that consumers and businesses pay to borrow throughout the economy.
The Fed’s next meeting — its last scheduled meeting for 2024 — is Dec. 17 and Dec. 18. Some experts are forecasting another quarter-point cut at the December meeting, too. If that takes place, the federal funds rate could be in a range of 4.25% to 4.5% by year end.
Federal Reserve: A Fed rate cut may be coming, but it may be too small for Americans to notice
Most people aren’t talking about the great deal they just got on a credit card rate or a car loan, though.
The average credit card rate now is 20.5% — down just a tiny bit from the 20.78% average on the morning of Sept. 18, before the Fed announced its first rate cut that afternoon, according to Bankrate.com data.
The average 60-month new car loan rate being marketed now is 7.51%, according to Bankrate.com data. That’s down from an average of 7.67% on the morning of Sept. 18.
The average 48-month used car loan rate now is 8.21%, down from 8.3% on Sept. 18, according to Bankrate.com data.
“Consumers have yet to benefit much from the Fed’s rate cut,” said Mark Zandi, chief economist for Moody’s.
“Credit card and auto loan rates have peaked, but they are falling very slowly, at least so far,” Zandi said. “It will take more rate cuts and time for competition among lenders to kick in before consumers benefit.”
Mortgage rates actually edged up since the Fed’s last rate cut of a half-point on Sept. 18. The 30-year fixed rate mortgage averaged 6.72% on Oct. 31, according to data from Freddie Mac’s latest primary mortgage market survey. That’s down from the 7.79% weekly average a year ago on Oct. 26, 2023.
But we’re still talking about a decent bump up from the 6.08% recent low that was hit in the Sept. 26 survey.
Mortgage rates — which don’t move in lockstep with changes in the federal funds rate — have gone up based on various headwinds, including the outlook for the economy and the 2024 presidential election.
“The strong economy has caused investors to expect the Fed to cut rates more slowly,” Zandi said.
And, he added, at various points in mid- to late-October, expectations had grown that former President Donald Trump would win the 2024 election on Nov. 5. Long-term interest rates, such as mortgage rates overall, Zandi said, would end up higher because Trump’s tariff, immigration and tax policies would fuel inflation and bigger budget deficits.
“Mortgage rates are the wild card,” said Ted Rossman, senior industry analyst for Bankrate.com.
Mortgage rates, Rossman noted, are one of the least Fed-dependent consumer rates. Instead, the 30-year mortgage rate tends to track 10-year Treasuries plus a profit margin.
“Investors have pushed long-term yields higher in recent weeks,” Rossman said.
Mortgage rates, he said, went up with the growing likelihood that a soft landing would mean the Fed wouldn’t have to cut rates as much, possibly.
The bond market in recent weeks also could have been anticipating more inflation ahead in the long run, Rossman said, if Trump won the election and we ended up with higher tariffs, deficit-financed tax cuts and lower immigration, which could drive up the cost of labor.
Some “buy the rumor, sell the news” has taken place, Rossman said.
Consumers who are looking to buy a home or refinance an existing mortgage, though, cannot expect to see 30-year mortgage rates in the 3% to 4% range any time soon, no matter what happens, Rossman said.
Mortgage rates, he said, are likely to be a lot higher than we got used to over most of the past 15 years.
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Right now, Rossman said, consumers can expect to continue to see a “slow, steady drift downward for credit card, auto loan and CD rates.”
Savers are already seeing some lower rates, such as the newly announced rates for I Bonds. Series I Savings Bonds issued from Nov. 1 through April 30, 2025, will have an annualized rate of 3.11% for six months after the bonds are issued. That includes a 1.2% fixed rate that remains with the 30-year life of the I Bond.
The new I Bond rates are down significantly from the rates for I Bonds issued from May through October, which had a 4.28% annualized rate for six months. Those I Bonds carry a fixed rate of 1.3% that will remain for the 30-year life of the bond.
By year’s end, Rossman said:
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The average credit card rates offered to consumers could be around 20% to 20.25%.
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The average 60-month new car loan could be between 7% and 7.25% at the end of 2024, Rossman said, while the average 48-month used car loan could end up between 7.75% and 8%.
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The average 1-year CD rate could be between 1.75% and 2% in roughly eight weeks. Currently, the average 1-year CD rate is 2%. That’s down from 2.05% from the morning of Sept. 18, before the Fed rate cut was announced that afternoon.
The risks of a contested 2024 presidential election were expected to hold back spending and possibly stunt economic growth, but on Tuesday, former President Donald Trump clearly won the needed 270 electoral votes to return to the White House in January.
“There is nothing but downside risk to the economy the longer it takes to determine who won the election,” Zandi said Saturday.
“The collective psyche is already fragile, and a protracted and contentious election process will be difficult for investors, businesses and consumers to tolerate,” Zandi said then.
But Wednesday morning such a scenario was more unlikely. The Dow Jones Industrial Average initially gained more than 1,000 points Wednesday morning on news of the Trump victory.
Diane Swonk, chief economist for KPMG US, noted that the Fed is more focused on lifting its foot off the brakes right now and “not hitting the gas to rev the economy.”
The KPMG report released before Election Day stated that Federal Reserve Chairman Jerome Powell is likely to “leave the door open a crack for a final quarter-point cut in December.”
But the report also highlighted concerns about the aftermath of what’s been advertised as an election that “could be one of the tightest elections in a string of close elections.”
“Concerns over the outcome of the elections, and any delays in determining the winner of the presidential election, will fuel policy uncertainty,” the KPMG report noted.
So far, the Nov. 3 report noted, the impact of that uncertainty on actual economic activity has not been substantial. Yet, uncertainty did hold back some spending.
“CEOs have said that they are holding off on big investment decisions until after the cloud of uncertainty lifts over what appears to be a razor-close race,” according to the Nov. 3 KPMG report.
Most economists still expect the Fed to cut rates Thursday. But uncertainties remain about what path the Fed will take in 2025 and what shifts the economy — and inflation — could take as Trump heads to the White House.
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.
This article originally appeared on Detroit Free Press: Another Fed rate cut is ahead but likely. So is more uncertainty
