Interest Rate Outlook: Fed Shift on the Horizon

Picture of John Morelli

John Morelli

Interest rate cuts on the horizon.
Economic experts at Morningstar anticipate changes in Federal Reserve policy for the coming year. Their projections suggest a shift towards a more accommodative stance, with potential rate cuts starting in 2024.

Here are some key takeaways:

  • Expected Rate Reductions: Morningstar predicts the federal funds rate to decrease from its current range (5.25% – 5.50%) to 3.75% – 4.00% by year-end, with further cuts in 2025 and 2026. This could bring rates back to pre-pandemic levels.

  • Driving Factors: Easing inflation and improved supply chain issues are the main reasons behind this predicted shift. As inflation moderates, the need for restrictive monetary policy lessens, allowing the Fed to support economic growth.

  • Global Alignment: The International Monetary Fund (IMF) and other financial leaders share similar views, suggesting potential rate adjustments in the latter half of 2024 to balance economic stability with growth.

  • Impact on Mortgages: Mortgage rates are expected to follow the trend of the federal funds rate. Forecasts suggest a possible decrease in the 30-year fixed rate to around 5.0% by 2025, compared to the 2023 average of 6.8%. This decline could improve housing affordability and stimulate the market.

Read the full article on Morningstar

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