After the pandemic, inflation skyrocketed. In response, the Federal Reserve started increasing interest rates to cool the pace of rising prices, hiking its benchmark rate 11 times. Now that inflation has slowed—from more than 9% to 3.4%—the Fed expects to hold rates steady before cutting them in 2024.
Meanwhile, not a single policymaker is penciling in more interest rate hikes for 2024, updated rate projections released along with the December rate decision show. If borrowing costs go anywhere else from here, the Fed is also admitting that they're most likely to head down — not up.
No Fed officials see rates higher by the end of next year. After raising the policy rate by 5.25 percentage points since March 2022 – in one of the Fed's fastest and biggest rate hike campaigns – it has now held the rate steady since July as inflation inches closer to its 2% target rate, from a high of over 9% in 2022.
WASHINGTON – The Federal Reserve left its key short-term interest rate unchanged again Wednesday, hinted that rate hikes are likely over and forecast three cuts next year amid falling inflation and a cooling economy.
The Federal Reserve has two more opportunities to raise interest rates in 2023, but many experts think no more hikes are coming — an encouraging development for stock market investors and prospective homebuyers. The Fed has increased interest rates 11 times since March 2022 to tame inflation.
The Fed is done raising interest rates. Next stop: Rate cuts. In 2022 and 2023, the Federal Reserve raised its benchmark interest rate 11 times in an effort to cool off red-hot price increases. Now that inflation has eased, analysts expect the Fed to hold rates steady before cutting them later in 2024.
The Fed signaled that rates could begin to decline in the near future, but they will keep an eye on changing economic conditions. The FOMC raised interest rates to 5.25%–5.50% at the July 2023 meeting, marking 11 rate hikes in a cycle aimed at curbing high inflation. Since then, rates have held steady.
After all, higher rates equate to higher minimum payments. So, you may be wondering if, and when, mortgage rates might fall to 3% or lower again - and whether or not it's worth waiting to buy a home until they do. Although rates could fall to 3% again one day, it's not likely to happen any time soon.
The Federal Reserve Bank took a wait-and-see approach to further rate hikes as it held its overnight interest rate steady in November.
Projected Interest Rates in the Next Five Years
ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.
After its December 2023 session, the Fed forecasted it would make three quarter-point cuts by the end of 2024 to lower the benchmark rate to 4.6%. Prices have started to come down, but the group has signaled it wants to see more positive data before pulling the trigger.
Analysts with Fannie Mae and the Mortgage Bankers Association (MBA) both project that rates will fall going into 2024 and throughout next year. Fannie Mae economists expect rates to drop more quickly, falling below 6% by Q4 2024. Meanwhile, the MBA's forecast for Q4 2024 is 6.1% and 5.9% for Q1 2025.
Importantly, the SEP projects that the Federal Funds rate will fall to 4.6% in 2024, 3.6% in 2025, and 2.9% in 2026. This implies three 25 basis point rate cuts in 2024, vs. our projection of four cuts. Thereafter, the Fed sees additional cuts with the Fed Funds rate gradually converging to 2.5%.
The current Fed rate is 5.25% to 5.50%.
The latest yield curve from the BoE forecasts a cut in interest rates in quarter 2 of this year. But it's clear this higher for longer interest rate environment is here to stay. Data shows interest rates will remain above 3% well into 2027.
What Is the Current Prime Rate? As of November 1, 2023, the current prime rate is 8.50%, according to The Wall Street Journal's Money Rates table.
In updated projections released along with the Fed's December decision, not a single Fed official penciled in higher rates from here, suggesting borrowing costs have already peaked. Meanwhile, the Fed penciled in a target range of 4.5-4.75 percent by the end of 2024 — 0.75 percentage point lower than its current level.
Projections released by the Fed showed the central bank would hike rates to a median 5.6% by the end of 2023, up from the current range between 5.25% and 5.5%.
"All FOMC members believe that rates will be stable or higher through 2023 before slowly coming down in 2024–2025 to settle at a comfortable 2.5% for the longer-term," she says.
Average 30-Year Fixed Rate
After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023. Many experts and industry authorities believe they will follow a downward trajectory into 2024.
Goldman said it expects 30-year mortgage rates will drop to 6.3% by the end of 2024, and fall slightly in 2025 to 6% as the Fed starts to cut interest rates. Previously, Goldman had expected the 30-year mortgage rate to be at 7.1% by the end of 2024 and at 6.6% by the end of 2025.
The Fed has announced that they will not raise interest rates this month. The general consensus among officials is that inflation will continue to trend downward. The Fed has left open the possibility of another interest rate hike before the end of the year, but remains optimistic that rates will decline in 2024.
“Mortgage rates will probably hover around 7 percent through September,” she says. “But we should expect to see Treasury yields and mortgage rates decline as we head toward the end of the year. My current forecast is for mortgage rates to be between 6.5 and 6.75 percent at the end of 2023.”
The national average rate for one-year CD rates started out at 1.07 percent in 2023, and it rose to 1.73 percent by the end of the year. At the start of 2023, the national average rate paid by five-year CDs was 1.16 percent, and it climbed to 1.43 percent by year's end.