US Fed signals interest rate cuts in 2024: Debt funds worth considering? (2024)

FAQs

How many interest rate cuts are expected in 2024? ›

Expectations For 2024 Interest Rates

On future monetary policy, Powell expected that “we'll need to be patient and let restrictive policy do its work.” When the FOMC's Summary of Economic Projections was last updated in March, most policymakers expected two or three interest rate cuts in 2024.

In April, both the MBA and Fannie Mae predicted 30-year rates would drop down to 6.4% by late 2024. These higher rate forecasts could be tied to the federal funds rate.

As a general rule of thumb, when the Federal Reserve cuts interest rates, it causes the stock market to go up; when the Federal Reserve raises interest rates, it causes the stock market to go down. But there is no guarantee as to how the market will react to any given interest rate change.

Fed officials have said they won't start cutting interest rates – which would lower borrowing costs for millions of Americans, boost economic growth and further juice a bullish stock market – until inflation “is moving sustainably toward” the 2% target.

Mortgage rates will stay above 6.5% through this quarter. Fannie Mae Housing Forecast. “We revised our mortgage rate forecast downward slightly month over month. We now forecast the 30-year fixed rate mortgage rate to average 6.6% in 2024, and to average 6.1% in 2025.”

As a result, we expect mortgage rates to remain elevated through most of 2024. These high interest rates will prompt prospective buyers to readjust their housing expectations, but we anticipate housing demand to remain high due to favorable demographics, particularly in the starter home segment.

Mortgage rate predictions 2024

NAR believes rates will average 7.1% this quarter and fall to 6.5% by the end of 2024. While there's some dispute on exactly how much rates will decrease, the general consensus is that mortgage rates will go down later in 2024 and end up in the mid-to-low 6% range.

The average 30-year fixed mortgage rate as of Thursday was 6.99%. By the final quarter of 2025, Fannie Mae expects that to slide to 6.0%. Meanwhile, Wells Fargo's model expects 5.8%, and the Mortgage Bankers Association estimates 5.5%.

Overall, forecasters predict mortgage rates to continue easing, but not as much as previously thought. While McBride had expected mortgage rates to fall to 5.75 percent by late 2024, the new economic reality means they're likely to hover in the range of 6.25 percent to 6.4 percent by the end of the year, he says.

The Fed typically cuts only when the economy appears to be weakening and needs help. Lower interest rates would reduce borrowing costs for homes, cars and other major purchases and probably fuel higher stock prices, all of which could help accelerate growth.

Should you sell bonds when interest rates rise? ›

If bond yields rise, existing bonds lose value. The change in bond values only relates to a bond's price on the open market, meaning if the bond is sold before maturity, the seller will obtain a higher or lower price for the bond compared to its face value, depending on current interest rates.

Rate Cut Expectations Fuel Bullish Outlook: A dominant 83% of investors now anticipate that short-term interest rates will be lower in the next 12 months.

Falling interest rates often go hand-in-hand with rising earnings, which historically has particularly benefited cyclical sectors. The consumer discretionary, technology, real estate, and financial sectors have historically been especially likely to outperform the market when rates fall and earnings rise.

Benefits of Reducing Rate of Interest

Shorter repayment period: Since your monthly payments gradually reduce with each instalment, you can repay your loan faster than a flat interest rate loan. Flexible tenure: Loans with reducing rates often offer more flexibility regarding repayment tenure.

Low interest rates help gold prices as they reduce the opportunity cost of holding the precious metal that earns no interest.

"By the first quarter of 2025, mortgage rates could potentially fall below the 6% threshold, or maybe even lower." Hold steady through 2024: Afifa Saburi, a capital markets analyst for Veterans United Home Loans, doesn't think rates are going to drop much this year.

An interest rate forecast by Trading Economics, as of 12 May, predicted that the Fed Funds Rate could hit 5.25% by the end of this quarter - a forecast that has been materialised. The rate is then predicted to fall back to 3.75% in 2024 and 3.25% in 2025, according to our econometric models.

The nation's top economists say the Fed is most likely to keep interest rates higher than 2.5 percent — often considered the “goldilocks,” not-too-tight, not-too-loose level for its benchmark federal funds rate — until the end of 2026, Bankrate's quarterly economists' poll found.

Is Inflation Ever Going to Go Down? Our base case is that inflation will return to normal in the second half of 2024, even as real GDP growth remains positive in year-over-year terms. This is referred by economists as a “soft landing.”