Borrowers hoping for relief from the Federal Reserve may be disappointed as the central bank is expected to pause interest rate cuts during its upcoming meeting on January 29, 2025. Most economists, over 90% according to FactSet, predict the Fed will maintain its benchmark interest rate range between 4.25% and 4.5% as officials assess current economic conditions and the potential impacts of new policies from the Trump administration.
A pause on rate cuts would mark the end of the central bank's aggressive reductions initiated last September, where rates were lowered by one percentage point. These cuts provided some respite for consumers and businesses grappling with persistent inflation, which Fed Chair Jerome Powell has noted remains above the ideal 2% annual target.
Recent reports indicate inflation rates have been sluggish, with economists like Erasmus Kersting from Villanova University explaining, “The reason why the Fed isn't jumping the gun at lowering the rates faster and farther is inflation is not gone.” This wait-and-see approach is compounded by the uncertainty surrounding Trump's policies, including proposed tariffs and increased deportations, which some experts warn could exacerbate inflationary pressures.
The Federal Open Market Committee (FOMC) will announce its decision at 2 p.m. EST, followed by Powell's press conference at 2:30 p.m. This meeting is particularly pivotal as it is the first under Trump’s second term, and market analysts suggest considerable scrutiny will be placed on whether the Fed can maintain independence amid presidential pressure for lower rates.
During the last year, the Fed cut its interest rate three times, kicking off the reduction with a half-point cut. Despite this, consumers may not see immediate relief on borrowing costs, as financial experts highlight persistent high rates for mortgages and credit cards. Matt Schulz, Chief Credit Analyst at LendingTree, stated, “Anyone hoping for the Fed to ride in as the cavalry and rescue you from high interest rates anytime soon is going to be really disappointed.”
Currently, the average interest rate for new credit cards is approximately 24.26%, and the average 30-year mortgage hovers around 6.65%. Analysts express concern for homebuyers and those wishing to refinance as the Fed's decisions won’t drastically affect mortgage rates, which synthesize various economic factors including the yield of U.S. Treasury bonds. Austin Walker, CEO of A. Walker & Co., noted, “The general consensus is rates will likely remain unchanged until the market has more clarity.”
On the contrary, savers might benefit from the current environment. Though high-yield savings account rates have diminished, they still hold potential for attracting deposits, with some accounts offering over 4%. Schulz emphasized this point, stating, “The decline should slow as well,” hinting at stability for savings accounts if rate cuts are halted.
The consensus on rate decisions could change, depending largely on Trump's economic initiatives. Analysts forewarn of potential inflation resulting from tariffs on imports, which Trump plans to roll out. According to former Dallas Fed President Robert Kaplan, there are major structural changes expected, with heightened inflation risks looming as the administration pushes forward policies with inflationary potential.
Over the last year, there have been signs of economic resilience, as indicated by continued consumer spending and declining yet still elevated inflation rates. The last recorded inflation was at 2.9% as of December 2024, showcasing progress since its previous peak. Many economic indicators suggest the Fed is not compelled to rush additional cuts, as the labor market remains strong and diverse sectors demonstrate growth.
Despite clear indicators pushing the Fed to hold its ground, President Trump has frequently reiterated his wish for interest rates to decline swiftly, stating at the World Economic Forum, “I’ll demand lower rates immediately.” His comments raise concerns about external pressures affecting Fed policies. Nevertheless, history shows the Fed operates independently, and under its legislative mandate, it prioritizes achieving low and stable prices.
The upcoming meeting, now approaching, presents challenges for the Fed as officials typically avoid drastic actions without clear evidence of trending inflation decrease. Diane Swonk of KPMG explained, “The Fed would prefer to stop short on rate cuts than reverse course and have to raise rates if inflation were to reignite.”
Market projections indicate mögliche cuts later this year, possibly near mid-year, but the timeline remains murky as officials analyze the economic environment closely. Therefore, anticipation builds around the outcomes of the upcoming policy meeting as the economic climate evolves under the impact of Trump’s initiatives.
The Federal Reserve’s recent consistent approach stays rooted in caution, balancing inflationary risks against economic growth. Fed policymakers will transition to the new year as they continue surveying domestic and international economic currents—awaiting more data before making definitive decisions on interest rates this year.