“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.
Our strategists believe that there will likely be two additional rate cuts in 2024, and expect the cuts to continue into 2025. This cut in policy rates should help support labor markets from slowing too quickly.
For savers, banks offering top interest rates tend to pay more when the U.S. central bank hikes rates and less when it cuts them. The Fed decided at its December meeting to decrease rates by a quarter of a percentage point, or 25 basis points, effectively lowering the federal funds rate to a range of 4.25-4.5 percent.
Do interest rate hikes hurt the stock market? If the Federal Reserve raises the short-term federal funds target rate it controls (as it did in 2022 and 2023), it can have a detrimental effect on stocks. A higher interest rate environment can present challenges for the economy, which may slow business activity.
Market Expert Ruchir Sharma says that the stock market's momentum looks likely to sputter in 2025 and that it could falter as investors grow wary of the US's mounting debt problems.
Like CDs, Treasury bills and longer-term savings accounts are a good choice if you're looking for a place to stash your money in an account that pays higher rates. You can still get over 4% on several T-bill terms, but these rates may only last for a while due to the Fed's rate cuts.
Key Takeaways. Interest rates and bank profitability are connected, with banks benefiting from higher interest rates. When interest rates are higher, banks make more money by taking advantage of the greater spread between the interest they pay to their customers and the profits they earn by investing.
If growing your savings is a priority, a high yield savings account offers an ideal mix of financial security and top-tier interest rates. Whether you're building an emergency fund or saving to buy a home, a high yield savings account can play an important role in reaching your financial goals.
The next Federal Open Market Committee (FOMC) is on September 17-18, 2024. 1 This is one of the key dates that investors, economists, and policymakers mark on their calendars. The Fed is widely expected to cut its benchmark fed funds rate for the first time in more than four years at the September meeting.
After 14 months of stagnancy, the Federal Open Market Committee (FOMC) lowered the federal funds rate three times in 2024, ending the year with a target range of 4.25% to 4.50%, the lowest since February 2023.
Fannie Mae: Rates Will Average 6.4% in 2025 and 6.1% in 2026. The December Housing Forecast from Fannie Mae puts the average 30-year fixed rate at 6.6% in the beginning of 2025, declining to 6.1% in the first quarter of 2026.
The Fed is widely expected to announce another 25bps cut to the federal funds rate at its December 2024 meeting, marking the third consecutive reduction this year and bringing borrowing costs to the 4.25%-4.5% range.
As the Federal Reserve conducts monetary policy, it influences employment and inflation primarily through using its policy tools to affect overall financial conditions—including the availability and cost of credit in the economy.
The winners. Unsurprisingly, bond buyers, lenders, and savers all benefit from higher rates in the early days. Bond yields, in particular, typically move higher even before the Fed raises rates, and bond investors can earn more without taking on additional default risk since the economy is still going strong.
Besides loans, banks also invest in bonds and other debt securities, which lose value when interest rates rise. Banks may be forced to sell these at a loss if faced with sudden deposit withdrawals or other funding pressures.
Brokerages often see an uptick in trading activity when the economy improves and higher interest income from higher interest rates. Industrials, consumer names, and retailers can also outperform when the economy improves and interest rates move higher.
There are two high-yield checking accounts with interest of at least 7%, though: BCU PowerPlus Checking and Landmark Credit Union Premium Checking Account. Both come with major downsides, though. Are 7% interest savings accounts safe?
Bandhan Bank is a leader among private banks, offering 8.05% interest for 1-year fixed deposits. RBL Bank offers 8.00% on FDs with a tenure of 500 days, ensuring that medium-term investors also get good returns.
Despite an overall reduction in borrowing costs over the past two years, the 30-year mortgage rate recently moved up from a little above 6% in September 2024 to closer to 7% in January 2025. That contrasts with longer term mortgage rates holding at historically low levels of between 2% and 3% for much of 2020 and 2021.
The Federal Reserve is projected to cut interest rates only three more times in 2025, according to the 2025 Interest Rate Forecast from Bankrate's Chief Financial Analyst, Greg McBride, CFA. Those moves would take their key borrowing benchmark back down to 3.5-3.75 percent — still the highest since 2008.
Look to Stocks
Not all strategies that profit from rising rates pertain to fixed-income securities. Investors looking to cash in when rates rise should consider purchasing stocks of major consumers of raw materials.
Unlike traditional or high-yield savings accounts, which have variable APYs, most CDs lock your money into a fixed interest rate the day you open the account. That's why if you suspect interest rates will drop further, it can be a good idea to put money in a CD to preserve the high APY you would earn.