Our latest economic forecast for interest rates, inflation, and GDP growth. Wondering what's in store for interest rates? From July 2023 to September 2024, the Federal Reserve kept the federal-funds rate at a target range of 5.25% to 5.50%, far above the near-zero levels averaged since the 2008 financial crisis.
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. 2027: December projection is 4.3%, up from September's 4.2%.
The Federal Reserve and interest rates
Some people expected a downturn in 2022 – and again in 2023 and 2024 – due to the Federal Reserve's hawkish interest-rate decisions. The Fed raised rates rapidly in 2022 and held them high throughout 2023 and much of 2024.
Fannie Mae expects rates to average 6.4% for the year. Wells Fargo projects a slight decline, with rates averaging around 6.3% by the end of the year. Goldman Sachs predicts rates will remain above 6% through 2025.
Even though interest rates are still high, it's a great time to buy a house. The higher interest rates have priced some buyers out of the market, which means you could face less competition when you make offers. Plus, if interest rates do eventually go down significantly, you can always refinance to get the lower rate.
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.
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.
Ultimately, the Fed choose to cut its key rate by a quarter-point to about 4.3%. One official, Cleveland Fed President Beth Hammack, dissented in favor of keeping rates unchanged.
Effective Federal Funds Rate (I:EFFRND)
Effective Federal Funds Rate is at 4.33%, compared to 4.33% the previous market day and 5.33% last year.
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.
So how much did interest rates go up by in 2023? The total rate increase for 2023 was 1.25% per annum, with the RBA deciding to increase the cash rate by 0.25% per annum in February, March, May, June and November (no changes announced in January, April, July, August, September, October and December).
Fed officials indicated they now expect to cut rates by just a half point in 2025, which would likely mean two rate cuts at their eight policy-setting meetings. That's down from predicting a full percentage point (or four quarter-point cuts) in their September projections.
In the long-term, the United States Fed Funds Interest Rate is projected to trend around 4.00 percent in 2025 and 3.50 percent in 2026, according to our econometric models.
The current Bank of America, N.A. prime rate is 7.50% (rate effective as of December 19, 2024).
The Federal Reserve cut interest rates three times in 2024 and as outlined in the Summary of Economic Projections, more rate cuts could happen in 2025. Cuts to the federal funds rate influence declines in savings account rates, which is why we're already seeing fewer 5% interest savings accounts offered.
Inflation cooled enough to allow the Fed to start moving interest rates in the other direction, with three cuts since September. McBride expects another three interest rate cuts in 2025, which will bring the benchmark rate down to a range of 3.5% to 3.75%.
The Federal Reserve met on Dec. 18, 2024, and cut interest rates by 25 basis points (0.25 percentage point) to a new target range of 4.25% to 4.5%. This move was in line with previous Fed announcements and was widely expected. A Fed rate cut is good financial news for many but bad news for others.
Utilize gift funds. Some home buyers are lucky enough to receive cash as a gift from their parents, grandparents or other family members when they buy a home. If you received this type of gift, you could use those funds to increase your down payment or to pay for mortgage points to buy down your rate.
Today's rates seem high compared with the recent 2% rates of the pandemic era. But experts say getting below 3% on a 30-year fixed mortgage is unlikely without a severe economic downturn.
It's better to put 20 percent down if you want the lowest possible interest rate and monthly payment. But if you want to get into a house now and start building equity, it may be better to buy with a smaller down payment—say five to 10 percent down.