The Federal Reserve is anticipated to hold off on further rate cuts at its January 29th meeting, marking a temporary halt to its recent easing measures. This pause will likely disappoint borrowers hoping for reduced interest rates on loans, mortgages, and credit cards. Economists predict the Fed will maintain its benchmark rate at 4.25% to 4.5% and potentially abstain from cuts until May. The decision stems from persistent inflation and concerns about the potential inflationary impacts of President Trump's policies.
Borrowers anticipating further financial relief from the Federal Reserve might face a waiting period, as the central bank is projected to hold off on additional rate cuts at its January 29th meeting. According to a majority of economists surveyed by financial data platform FactSet, the Fed is anticipated to maintain its benchmark rate within the current range of 4.25% to 4.5%.
The consensus among economists also suggests that the Fed will abstain from rate cuts at its March 19th meeting, implying that the next potential reduction might not occur until the central bank's May 7th meeting, as indicated by FactSet data. A January pause would signify a temporary halt to the Fed's series of rate cuts initiated in September 2024, which have resulted in a one percentage point decrease in the federal funds rate. This downward trend has contributed to lower borrowing costs for credit cards, home equity lines of credit, and other forms of debt, providing some respite to inflation-affected consumers and businesses. However, in December, the Fed conveyed its expectation of fewer cuts in 2025 compared to its earlier projections, with Fed Chair Jerome Powell highlighting that inflation remains above the central bank's target rate of 2% annually. Furthermore, economists argue that the Fed likely wants to adopt a cautious approach in response to the Trump administration's policies, such as the implementation of new tariffs and widespread deportations of immigrants, which could potentially trigger inflationary pressures.'The primary reason why the Fed is not excessively lowering rates is that inflation has not been completely eradicated. They have meticulously analyzed the data, revealing that it stubbornly persists above the target, raising concerns that further rate reductions could lead to a resurgence in inflation,' explained Erasmus Kersting, a professor of economics at Villanova University, in an interview with CBS MoneyWatch. Additionally, he emphasized, 'Tariffs or mass deportations are anticipated to be inflationary. Consequently, the Fed is also prudent to exercise caution regarding rate reductions.'Here's a breakdown of what to anticipate from a Fed rate pause:* **Next Rate Decision Announcement:** The Federal Reserve will disclose its rate decision at 2 p.m. EST on January 29th, followed by a press conference with Fed Chair Jerome Powell at 2:30 p.m. EST.* **Impact of a Pause on Rate Cuts:** Three rate cuts were implemented by the Fed last year, beginning with a substantial 0.5 percentage point reduction in September. This was followed by two consecutive 0.25 percentage point cuts: one at its November meeting and another at its December meeting. However, a pause in early 2025 indicates that consumers should not anticipate any immediate relief on borrowing costs, according to experts. 'Individuals expecting the Fed to act as a cavalry and rescue them from high interest rates anytime soon will be profoundly disappointed,' stated Matt Schulz, chief credit analyst at LendingTree, in an email. 'This applies to mortgages, auto loans, credit cards, or any other type of borrowing.'Schulz suggests that because credit card rates and other borrowing costs are unlikely to decrease, consumers should prioritize managing their high-interest debt. Options such as transferring balances to a 0% balance transfer credit card or consolidating credit card debt through a personal loan can be helpful in reducing interest payments.On the brighter side, for savers, high-yield savings accounts may still offer competitive rates, despite a decline since the Fed began lowering its benchmark rate last year. Schulz noted that some savings accounts are still providing returns above 4%, down from approximately 5% a year ago.'Returns on high-yield savings accounts have decreased from their record highs as the Fed has reduced rates. However, with the Fed's pause, this decline is expected to slow down as well,' he said.* **Mortgage Rate Predictions:** A source of disappointment for homebuyers and homeowners seeking to refinance into lower rates has been the persistent high mortgage rates. Despite the Fed's three rate cuts last year, the average 30-year home loan remains near 7%, close to 25-year highs. Mortgage rates haven't decreased despite the Fed's cuts because home loans are influenced by various factors beyond the federal funds rate, including broader economic trends and changes in the yield for the U.S. 10-year Treasury bond.Due to concerns among economists that President Trump's plans could lead to inflation, mortgage rates might not decline anytime soon, experts said. 'The prevailing sentiment is that rates will likely remain stable until the market gains greater clarity regarding potential policy impacts concerning immigration, taxes, and tariffs,' noted Austin Walker, CEO of A. Walker & Co., a housing finance company. * **Interest Rate Outlook under President Trump:** Last week at the World Economic Forum's annual gathering in Davos, Switzerland, President Trump stated that he would 'demand that interest rates drop immediately, and likewise, they should be dropping all over the world.' However, it is highly improbable that the Fed will succumb to such pressure. The Fed operates independently of the executive branch and bases its decisions on economic data and analysis rather than political directives
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