2024: December projection is 4.2%, down from September's 4.4%. 2025: December projection is 4.3%, down from September's 4.4%. 2026: December projection is 4.3%, no change from September.
Fixed income markets anticipate that the Federal Reserve will cut interest rates in 2025, but not by much. Short-term interest rates are expected to end 2025 close to 4%. That's down from the current 4.25% to 4.5% range as of January 2025.
•
The National Association of Home Builders expects the 30-year mortgage rate to decrease to around 6.5% by the end of 2024 and fall below 6% by the end of 2025, according to the group's latest outlook.
On November 7, 2024, the Federal Reserve cut rates an additional 0.25%. This follows a more substantial cut in September of 0.5%. These cuts come after the Fed started raising rates in 2022 to help bring down inflation, which was squeezing consumers and businesses.
Expert Projections of Interest Rates in the Next Few Years
According to the St. Louis Fed, interest rates in the coming years are expected to be: 2025: 3.4% 2026: 2.9%
Which bank gives the highest interest rate on FD? As of 2024, Canara Bank offers the highest interest rate of 7.25% for 444 days.
At its February 2024 meeting, the Reserve Bank Board decided to leave the cash rate target unchanged at 4.35 per cent. This decision supports progress of inflation to the midpoint of the 2–3 per cent target range within a reasonable timeframe and continued moderate growth in employment.
It's possible that rates will one day go back down to 3%, though if current trends hold that's not likely to happen anytime soon.
The current Bank of America, N.A. prime rate is 7.50% (rate effective as of December 19, 2024).
"As we look ahead into 2025, lower CD interest rates are a possibility," says Ben Alvarado, executive vice president at California Bank and Trust. After all, the Federal Reserve lowered its benchmark rate three times in 2024, and many analysts expect there to be at least two more Fed rate cuts in 2025.
“Our view is that [the Fed] probably do have one more [cut], but pauses at or above 4%” in 2025. Against this backdrop, another scenario becomes possible, if unlikely: A strong economy and renewed rise in inflation could prompt the Fed to raise rates again in 2025.
That marks the Fed's third consecutive rate cut this year, which kicked off with a jumbo 0.5 percentage point reduction in September, followed by a 0.25 percentage point cut at its November meeting. With today's cut, the Fed has lowered rates by a full percentage point since September.
The fed funds target rate is now set at 4.25% to 4.50%. The Fed held rates at 5.25% to 5.50% from July 2023 to September 2024. Between March 2022 and July 2023, the Fed raised rates eleven times, from near 0%. Source: U.S. Federal Reserve, December 18, 2024.
3.4% expected in September. That implies two more 25 basis point cuts from where rates are today. In 2026, the FOMC expects to cut by another 50 bps, to 3.4%.
Current Forecasts and Expert Opinions
The short answer is: It's highly unlikely we'll see mortgage rates drop back to 3% anytime soon. However, recent inflation numbers point to cooling of the pace of inflation.
However, interest rates predictions are difficult as any further cuts depend on factors such as what happens with inflation. So predictions will have to be revised. For example, in January 2024, Capital Economics forecast that interest rates would be reduced to 4.00% by the end of 2024.
Certificates of deposit: 3% APY or higher
The most competitive rates on CDs for three-month to one-year terms remain above 4% annual percentage yields, with the best long-term CDs (three- to five-year terms) above 3.50%, according to NerdWallet analysis in mid-December 2024.
The FOMC holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.
The interest rate was lowered 0.25 percentage points in December. U.S. central bankers now project they will make just two quarter-percentage-point rate reductions by the end of 2025.