Are interest rates going to drop in 2024?
The answer: Mortgage rates should keep falling in 2024. The larger-than-expected slash to the fed funds rate and an indication that it will cut rates again this year should result in lower mortgage interest rates. Mortgage rates will also likely decrease throughout 2025.
With the Fed now cutting rates, mortgage rates could continue to fall some through the end of 2024 and into 2025.
He isn't alone in predicting one further base rate cut in 2024 will see interest rates fall. Many expect the base rate to reach around 4% by the end of next year. However, any further cuts in interest rates depend on factors such as what happens with inflation and wages.
CD rate forecast: 2024
The Fed lowered its rate by one-half percentage point to a rate range of 4.75% to 5.00% after its sixth meeting of 2024 on Sept. 17-18. Projections suggest that the Fed will continue to drop its rate for the next few years, and it's unlikely that we'll see any rate increases.
The average used car loan rate was at a 15-year high in the second quarter of 2024, according to Experian, and new car loan rates were elevated as well. But Smoke said he believes we've seen the peak of auto rates, and borrowers can expect (slowly) declining rates into 2025.
By the end of 2024, interest rates will fall another half of a percentage point from their current level of between 4.75% and 5%, according to FOMC projections. Interest rates will drop another percentage point over the course of 2025, the projections further indicated.
With the 0.5% rate cut, the federal reserve has released their predictions for where they'll put rates in 2 years and beyond. At 2026 the majority predicts under 3% and even lower.
As a result, growth will ease towards the end of this year with interest rates starting to bite on output and flow through to domestic demand which will remain strong enough to prevent a technical recession. EIU forecasts real GDP growth of 2.4% in 2024, with a deceleration to 1.4% in 2025.
Fed officials predicted that they would cut interest rates to 4.4 percent by the end of the year — much lower than the 5.1 percent they had been expecting in June, when they last released economic estimates. And by the end of 2025, they expect to lower borrowing costs another full percentage point, to 3.4 percent.
A general rule of thumb is that it makes financial sense to refinance your mortgage if you can secure a rate that's at least 1% lower than the one you currently have.
Should I lock in a CD rate now?
You're retired, or about to retire
People who are already retired – or retiring in the near future – should consider a CD and lock in a rate now. That way they can potentially be ahead of long-term inflation. There's no guarantee that inflation will stay in the 2 percent range; it could increase in the future.
You can find certificates of deposit (CDs) with rates as high as 6% at a few financial institutions. However, these rates aren't available at traditional banks. Typically, these high-yield 6% CDs come with maturities of 12 months or less.
| Institution | Rate (APY) | Minimum Deposit |
|---|---|---|
| Connexus Credit Union | 4.96% | $100,000 |
| One American Bank | 4.95% | $100,000 |
| CD Bank | 4.90% | $100,000 |
| Finworth | 4.90% | $50,000 |
The Mortgage Bankers Association (MBA) September forecast also predicts the 30-year rate will be at 6.2% in Q4 2024, but it's a little more conservative with 2025 expectations — the MBA foresees a 5.8% rate at the end of 2025.
Now, however, may be the right time to upgrade that older model, industry watchers say. "2024 is probably the best year since the pandemic to buy a new car," Mark Schirmer, director of industry insights at Cox Automotive, told ABC News. "2021 and 2022 were really difficult years.
72-month auto loan rates on average are 6.86% for new car financing and 12.80% for used vehicles.
The Bank of England made the first cut to interest rates in four years in August 2024, giving hope to mortgage holders that the borrowing squeeze is coming to an end. Here we explore when rates could be cut again. The Bank of England's current base rate is 5%, after being cut from 5.25% on 1 August.
Lawrence Yun, chief economist at the National Association of Realtors, even told CNBC last year that he doesn't think mortgage rates will reach the 3% range again in his lifetime.
Our strategists believe that there will likely be two additional rate cuts in 2024, and expect the cuts to continue into 2025. This cut in policy rates should help support labor markets from slowing too quickly.
We now expect the Fed to cut rates by 25bp at both the November and December meetings, followed by four more 25bp cuts through 2025, with rates being lowered at every other FOMC meeting next year.
How long is interest rate future?
These futures can also be short-term or long-term. Short-term interest rate futures have an underlying instrument with a maturity of less than one year, while long-term interest rate futures have an underlying instrument with a maturity of over one year.
Kates expects yields on short-term CDs will fall to around 4% by the end of 2025. “Longer maturities, such as three- to five-year CDs, will be lower, possibly 3% to 3.5%, as banks continue to hedge falling interest rates throughout 2025,” he said.
Overall, for 2024, we predict real consumer spending to increase 2.4%. Spending on durable goods is expected to rise 1.6% in 2024, and spending on nondurable goods is expected to rise by 1.7%. Interest-rate cuts should drive stronger demand for durable goods next year and throughout the remainder of the forecast.
By Q4 2025, Fannie Mae expects the 30-year fixed mortgage rate will average out at 6.2%. The MBA expects 6.0%, while Wells Fargo forecasts 5.9%. Simply put, all three firms expect a mild mortgage rate decrease over the next 18 months.
Global recession outlook
There is now a 35% chance that the global economy will enter a recession by the end of 2024, and a 45% chance that it will do so by the end of 2025.
