Interest Rates in 2025: What to Expect
As the Federal Reserve continues to shape the economy, interest rates are likely to move lower in 2025. However, with inflation still above target and a strong labor market, the pace of rate cuts is expected to slow.
A Shift in Fed Policy
In 2024, the Federal Reserve cut rates three times, reducing the federal funds rate by a full percentage point. While this trend is likely to continue in 2025, Fed officials have indicated that they will move more cautiously, with only two expected rate cuts this year.
The Impact on Borrowing
For consumers, this means that financing expenses will ease, but not significantly. According to Greg McBride, chief financial analyst at Bankrate, rates will come down, but settle at a level higher than what was seen before 2022.
Credit Card Rates
The average credit card interest rate has only edged off extremely high levels since the Fed started cutting interest rates. McBride predicts that the average APR on a credit card will fall to 19.8% by the end of 2025, down about half a percentage point from current levels. However, cardholders carrying a balance should continue debt-repayment efforts, as rates won’t provide meaningful relief soon.
Mortgage Rates
Despite the Fed’s rate cuts, mortgage rates have actually increased. McBride expects mortgage rates to spend most of the year in the 6% range, with a short-lived spike above 7%. The 30-year fixed-rate mortgage could end the year at 6.5%.
Auto Loan Rates
Consumers have been facing higher monthly payments due to elevated interest rates on new loans. While lower rates are expected, affordability concerns won’t change significantly. Five-year new car loan rates are expected to fall to 7%, while four-year used car financing costs could drop to 7.75% by the end of the year.
Savings Rates
Top-yielding online savings accounts have offered attractive returns in recent years, but rates are falling slowly. McBride predicts that top-yielding savings accounts and money market accounts could hit 3.8% by the end of 2025, while the top-yielding one-year and five-year CDs will fall to 3.7% and 3.95%, respectively.
A Positive Outlook for Savers
Despite falling rates, savers can still expect an attractive environment, with returns above inflation. By understanding the expected movements in interest rates, consumers can make informed decisions about their borrowing and savings strategies.
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