The Fed’s effort to reduce inflation has so far been successful, a rare feat in economic history.
The central bank signaled in its latest economic forecasts that it would cut interest rates in 2024 even as the economy continues to grow, which would be the sought-after path to a “soft landing” where inflation returns to its target of 2 % of the Fed without causing a significant increase in unemployment.
“Rates are headed lower,” said Tim Quinlan, senior economist at Wells Fargo. “For consumers, the cost of borrowing would be reduced accordingly.”
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Most Americans can expect to see their financing costs drop next year, but not by much, warned Greg McBride, chief financial analyst at Bankrate.
“We are in a high interest rate environment and we will be in a high interest rate environment a year from now,” he said. “Fed tapering will be modest relative to a significant rate hike from early 2022.”
Although Fed officials have indicated as many as three cuts this year, McBride expects only two potential cuts per quarter through the second half of 2024. Still, that would make borrowing cheaper.
From mortgage rates and credit cards to auto loans and savings accounts, here are his predictions on where prices are headed next year:
Forecast: Credit card rates fall just under 20%
Due to the central bank’s rate hike cycle, the average credit card interest rate has risen from 16.34% in March 2022 to nearly 21% today – an all-time high.
Going forward, annual rates are unlikely to improve much. Credit card rates won’t come down until the Fed starts tapering, and even then, they’ll only come down from extremely high levels, according to McBride.
“The average interest rate will remain above the 20% mark for most of the year,” he said, “and will eventually fall to 19.9% by the end of 2024 as the Fed cuts rates.”
Forecast: Mortgage rates fall to 5.75%
Thanks to higher mortgage rates, 2023 was the least affordable year to buy a home in at least 11 years, according to report from the real estate company Redfin.
But rates are already significantly lower than when they hit 8% in October. Now, the average interest rate on 30-year fixed-rate mortgages is 6.9%, up from 4.4% when the Fed began raising rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.
McBride also expects mortgage rates to continue to decline in 2024, but not to return to pandemic-era lows. “Mortgage rates will spend most of the year at 6%,” he said, “with the move below 6% limited to the second half of the year.”
Forecast: Car loan rates fall to 7%
When it comes to their cars, more consumers are facing monthly payments they can barely afford, thanks to higher vehicle prices and increased interest rates on new loans.
The average interest rate on a five-year new car loan is now 7.71 percent, up from 4 percent when the Fed started raising rates, according to Bankrate. But the Fed’s rate cuts will take away some of the rising cost of financing a car, McBride said, in part from competition among lenders.
McBride expects five-year new car loans to drop to 7% by the end of the year.
Forecast: High-yield savings rates remain above 4%
Rates on top-performing online savings accounts have made significant moves along with changes in the federal funds target rate and are now paying more than 5%—most savers have been able to earn in nearly two decades—up from about 1% in 2022. according to Bankrate.
Although those rates have likely peaked, “yields are expected to remain at their highest levels in over a decade despite two rate cuts by the Fed,” McBride said.
According to his forecast, the highest yielding offers in the market will still be at 4.45% next year. “It will still be a banner year for savers when these returns are measured against a lower rate of inflation,” McBride said.
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