Federal Reserve's Interest Rate Hikes May be Coming to an End

Americans are paying the price for the Federal Reserve's flurry of interest rate hikes, engineered to battle the hottest inflation in 40 years, through sharply higher borrowing costs. But with inflation now receding, the Fed's rate hikes may drawing to an end — and that has implications for your finances, according to Wall Street economists.

Wall Street is now forecasting that the Federal Reserve will keep rates steady at its December 13 meeting and beyond due to cooling inflation and a slower job market.

After that, the Fed could start cutting its benchmark rate as soon as early 2024, some economists are now predicting.

To be sure, Federal Reserve chairman Jerome Powell is keeping mum on the bank's next moves, saying earlier this month that it's too early to declare victory or to discuss when it might start cutting rates. But he also noted that consumer prices, excluding volatile food and energy costs, rose at just a 2.5% annual rate in the past six months — not far above the Fed's 2% inflation target.

"They've been done [hiking rates] for months — they just don't want the markets to know it," Jamie Cox, managing partner for Harris Financial Group, told CBS MoneyWatch. "Right now, with the way the Fed has been able to communicate with the markets, it's saying 'We're not raising rates, but don't think for a second we won't.'"

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Inflation has been rapidly slowing, with the Consumer Price Index, a basket of goods and services typically bought by consumers, likely rising 3.1% in November, down from a 40-year high of 9.1% in June 2022, according to FactSet. The CPI for November will be released on December 12.

Interest rate cuts in 2024?

Economists are forecasting that the rate hikes of the last two years are now likely a thing of the past, even if the Fed isn't telegraphing it. The Fed's last rate hike was in July, when it boosted the federal funds rate to 5.25% to 5.5%.

"We have stressed for some time that the Fed is finished hiking, but it's taken until now for that to crystallize among a broad range of policymakers," Morgan Stanley economists said in a recent research note, adding that they forecast the bank will hold rates steady until it makes its first rate cut in June 2024. 

The central bank is expected to keep its benchmark rate steady at its December 13 meeting as well as at its January 31 meeting, according to economists polled by FactSet. But the central bank could start cutting rates as soon as March, according to a growing number of Wall Street analysts.

That could have an impact on your money, from your savings to homebuying. Here's what the experts say.

What a pause means for CDs, savings accounts

Savers have enjoyed the bright side of the Fed's rate hikes through high-interest savings accounts that can now carry annual percentage yields of 5% or more. That comes after years of meagre APYs that effectively paid little to almost nothing for savers.

Likewise, certificates of deposit (CDs) are now providing robust rates, making them a more attractive place to sock some money. But with the Fed projected to hold rates steady for several months and then begin cutting in 2024, now is the time to lock in some of those juicy rates, experts say.

That's especially rewarding for people who were "the recipients of awful interest rates" prior to the Fed's rate hikes, notes Jamie Cox, managing partner for Harris Financial Group.

"The risk now is that the interest rates drop on you," Cox added, noting that he's recommending investors sock away money into some longer-term CDs before that happens.

For example, certain banks are currently offering Certificates of Deposit (CDs) with Annual Percentage Yields (APYs) close to 5% for a duration of up to 5 years. This interest rate may become difficult to achieve once the Federal Reserve starts reducing rates. Additionally, if you haven't already, now is the perfect time to deposit your savings into a high-yield savings account and take advantage of rates that exceed 5%.

What Can We Expect for Mortgage Rates in 2024?

Mortgage rates for home loans have already decreased from their 20-year peak earlier this year, when they reached over 8%.

LendingTree senior economist Jacob Channel believes that if the Federal Reserve decides to pause their rate hikes, it could potentially lead to even lower mortgage rates. In an email, Channel stated, "[T]heir decision to not raise rates in December could help alleviate some of the upward pressure on mortgage rates. As we progress through December, rates may fall below 7%, resulting in even greater savings compared to just a few weeks ago."

However, even if mortgage rates drop below 7%, buying a home would still be relatively expensive due to the fact that home prices are approximately 40% higher than pre-pandemic levels.

The real question is whether slightly lower mortgage rates could motivate some homeowners to list their properties. Many individuals purchased or refinanced their homes during the pandemic when rates were around 3%, making them hesitant to give up their existing loans in order to take on a new mortgage with a higher rate.

Will Credit Card Companies Reduce APRs?

According to LendingTree credit analyst Matt Schulz, it is unlikely that credit card companies will lower their Annual Percentage Rates (APRs).