The Federal Reserve's third interest rate cut of the year is expected to have a modest effect on debt, savings, and borrowing costs. Despite inflation pressures, the Fed indicated a more gradual approach to rate cuts in 2025, envisioning only two reductions compared to the previously projected four. This tempered outlook may disappoint borrowers hoping for significant rate reductions.
FILE - The seal of the Federal Reserve Board is seen at the building in Washington, Dec. 8, 2024. NEW YORK — The Federal Reserve ’s third interest rate cut of the year will likely have consequences for debt, savings, auto loans, mortgages and other forms of borrowing by consumers and businesses.
“This could be the last cut for a while,” said Jacob Channel, senior economist for LendingTree. “Because the upcoming Trump administration’s policies might cause a resurgence in inflation or otherwise throw the economy off balance, the Fed might choose to take a wait-and-see approach and hold rates steady at their January meeting.”
But, he cautioned, “Anyone expecting card rates to go from awful to amazing overnight because of the Fed is going to be sorely disappointed.” That means that, at least indirectly, cuts to the Fed’s key rate can put downward pressure on mortgage rates, even if they don’t move in lockstep. “Optimism and having money on hand to do these things has definitely green-lit some people’s spending, when other folks are more conservative with how much they’re spending,” he said.
Gregory Daco, chief economist for EY, suggested that Fed Chair Jerome Powell is reiterating “the familiar metaphor of moving slowly in a dark room full of objects to justify a potential rate cut ‘skip’ at the January meeting.”
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