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    • Another Fed rate cut is coming, but it is likely. So there is more uncertainty
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    Another Fed rate cut is coming, but it is likely. So there is more uncertainty

    Umito Posted on

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    Borrowers barely felt interest rates move after the First rate cut from the Fed in September, and they’re not about to get their money’s worth 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 on Thursday – the second rate cut in what is expected to be a series of reductions rate over the next year.

    Currently, Goldman Sachs Economic Research is looking at four more consecutive interest rate cuts in the first half of 2025, but also acknowledged in its Monday update that there is more uncertainty about the Fed’s path l next year.

    Inflation has cooled significantly since its peak more than two years ago. We are far from Inflation peak of 9.1% which reached in June 2022 – the highest level in 40 years.

    The consumer price index increased by 2.4% in September year-on-year. This is the lowest 12-month increase since February 2021. October CPI will be released on November 13.

    The Fed raises its short-term rates 11 times to fight inflationand now the Fed is on track to cut rates after inflation moderates.

    A quarter-point cut would bring the federal funds rate back to a range of 4.5% to 4.75%. The short-term federal funds rate is the interest rate used for overnight lending between banks, but it plays a huge role in influencing many of the interest rates that consumers and businesses pay to borrow in the entire economy.

    The Fed’s next meeting – its last meeting scheduled for 2024 – will take place on December 17-18. Some experts also predict a further quarter-point reduction at the December meeting. If that happens, the federal funds rate could be in a range of 4.25% to 4.5% by the end of the year.

    Federal Reserve: A Fed rate cut could be imminent, but it might be too small for Americans to notice.

    Most consumers still face high interest rates

    However, most people don’t talk about the great deal they just got on a credit card rate or car loan.

    The average credit card rate is now 20.5%, down slightly from the average of 20.78% on the morning of September 18, before the Fed announced its first rate cut in the afternoon, according to Bankrate.com data.

    The average rate for new 60-month auto loans currently on the market is 7.51%, according to data from Bankrate.com. This is down from the average of 7.67% recorded on the morning of September 18.

    The average 48-month used auto loan rate is now 8.21%, up 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, Moody’s chief economist.

    “Credit card and auto loan rates have been at record highs, but they are coming down very slowly, at least so far,” Zandi said. “It will take more rate cuts and time for competition among lenders to take hold before consumers benefit.”

    Mortgage rates fell then rose slightly

    Mortgage Rates actually increased slightly since the Fed’s last rate cut in a period half point on September 18. The 30-year fixed-rate mortgage was on average 6.72% as of October 31 according to data from Freddie Mac’s latest Primary Mortgage Market Survey. This is down from the weekly average of 7.79% a year ago on October 26, 2023.

    But we’re still talking about a decent rise from the recent low of 6.08% reached in the September 26 survey.

    Mortgage rates – which do not move in lockstep with changes in the federal funds rate – have risen due to a variety of headwinds, including the economic outlook and the 2024 presidential election.

    “The strong economy has led investors to expect the Fed to cut rates more slowly,” Zandi said.

    And, he added, at various points in mid-to-late October, expectations grew that former President Donald Trump would win the 2024 election on Nov. 5. Long-term interest rates, like mortgage rates in general, Zandi said, would end up higher because Trump’s tariff, immigration and tax policies would fuel inflation and larger budget deficits.

    “Mortgage rates are a wild card,” said Ted Rossman, senior industry analyst for Bankrate.com.

    Mortgage rates, Rossman noted, are among the consumer rates least dependent on the Fed. Instead, the 30-year mortgage rate tends to follow that of the 10-year Treasury bond plus a markup.

    “Investors have pushed long-term yields higher in recent weeks,” Rossman said.

    Mortgage rates, he said, rose with the growing likelihood that a soft landing would mean the Fed might not have to cut rates as much.

    The bond market could also have anticipated, in recent weeks, higher long-term inflation, Rossman said, if Trump won the election and we ended up with higher tariffs, tax cuts financed by the deficit and lower immigration, which could increase the cost. of work.

    Some people “buy the rumor, sell the information,” Rossman said.

    However, consumers looking to buy a home or refinance an existing mortgage cannot expect to see 30-year mortgage rates between 3 and 4 percent in the near future, no matter what, said Rossman.

    Mortgage rates, he said, will likely be much higher than we’ve been used to for most of the past 15 years.

    More from Susan Tompor: ‘Apple Card Failures,’ Including Mismanagement Disputes, Lead to Millions in Penalties

    What types of prices can we expect between now and the end of December?

    Right now, Rossman said, consumers can expect to continue to see a “slow and steady decline in credit card, auto loan and CD rates.”

    Savers are already seeing lower rates, such as the recently announced rates for I Bonds. Series I Savings Bonds issued from November 1 to April 30, 2025 will have an annualized rate rate of 3.11% for six months after the issuance of the bonds. This includes a fixed rate of 1.2% which remains valid for the 30-year life of Bond I.

    The new I-bond rates are significantly lower than the rates for I-bonds issued from May to October, which had a six-month annualized rate of 4.28%. These I bonds carry a fixed rate of 1.3% which will remain in effect for the 30-year life of the bond.

    At the end of the year, Rossman said:

    • Average credit card rates offered to consumers could be between 20% and 20.25%.
    • The average new car loan over 60 months could be between 7% and 7.25% at the end of 2024, Rossman said, while the average used car loan over 48 months could be between 7 .75% and 8%.
    • The average 1-year CD rate could be between 1.75% and 2% in about eight weeks. Currently, the average 1-year CD rate is 2%. This is down from the 2.05% rate recorded on the morning of September 18, before the Fed’s rate cut announcement that afternoon.

    What’s next after the presidential election?

    The risks of a contested presidential election in 2024 were expected to curb spending and possibly dampen economic growth, but on Tuesday former President Donald Trump clearly won the 270 electoral votes needed 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 prolonged and contentious electoral process will be difficult for investors, businesses and consumers to tolerate,” Zandi said at the time.

    But on 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 Trump’s victory.

    Diane Swonk, chief economist at KPMG US, noted that the Fed is now focusing more on taking its foot off the brakes and “not stepping on the accelerator to restart the economy.”

    The KPMG report released before Election Day said Federal Reserve Chairman Jerome Powell would “likely leave the door open for a final quarter-point cut in December.”

    But the report also highlights concerns about the consequences of what has been billed as an election that “could be one of the closest elections in a series of close elections.”

    “Concerns about the election outcome and any delay in determining the winner of the presidential election will fuel political uncertainty,” the KPMG report noted.

    So far, the November 3 report notes, the impact of this uncertainty on real economic activity has not been substantial. Still, uncertainty has slowed some spending.

    “CEOs said they are waiting to make big investment decisions until the cloud of uncertainty clears over what appears to be a tight race,” according to the Nov. 3 KPMG report.

    Most economists still expect the Fed to cut rates on Thursday. But uncertainties remain about what path the Fed will take in 2025 and what changes the economy — and inflation — might take as Trump heads to the White House.

    Contact personal finance columnist Susan Tompor: [email protected]. Follow her on X (Twitter) @tompor.

    Umito
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