Fed Slashes Rates for Third Time in 2024, Signals Cautious Cuts in 2025

The Federal Reserve announced its third interest rate cut of 2024 in mid December, reducing rates by 0.25% to a target range of 4.25%-4.50%. The move, aimed at bolstering economic growth amid slowing momentum and easing inflation, signals the central bank’s commitment to sustaining stability in uncertain times. LilliDay from Getty Images Signature

Borrowing Costs Drop, Yet Some Rates Soar

The lower rate will affect the cost of borrowing money. Mortgage rates, credit card APRs, and HELOC rates should drop. However, some financial products can end up with higher interest rates despite Fed cuts. Mortgage rates are higher than they were before the September 2024 rate cut. Alina555 from Getty Images Signature

2025 Forecasts Two Rate Cuts, Three Officials Push for One

The Federal Reserve has scaled back expectations for 2025, now projecting only two rate cuts, a sharp contrast to earlier optimism when many more were anticipated. However, three officials hold a more conservative view, advocating for just one cut.

Powell mentioned that December’s rate cut wasn’t a sure thing. “Today was a closer call but we decided it was the right call,” Powell told reporters after the rate cut was announced. Kameleon007 from Getty Images Signature

CD Rates May Peak Before 2025 Fed Decisions, Housing Market Lags

Savers can still pick up CDs with competitive yields before the Fed does additional rate cuts in 2025. While borrowing costs are down, they are still much higher than they were before the pandemic.

Homeowners still face a tough market, with a low housing supply keeping rates elevated. The low supply of houses looks like it’s here to stay, as many people who were able to lock in low rates before the pandemic prefer to stay put. 89Stocker from Getty Images Signature

Fed Rate Cut Boosts Investors, But 2025 Forecast Disappoints

A lower Fed rate is good for investors, but not everyone was happy. The Nasdaq Composite and S&P 500 were both down upon the announcement. Many investors anticipated a rate cut, but they were expecting a better forecast for 2025 rate cuts.

In a November paper, J.P. Morgan Research expected “further cuts only taking place once per quarter in 2025.” Now, it remains doubtful that rates will drop each quarter in 2025.

Long-term investors may feel uneasy about fewer Fed rate cuts in 2025, but experts urge focusing on goals despite short-term market swings. primeimages from Getty Images Signature