Jamie Spencer
Borrowers hoping for additional Federal Reserve rate cuts may have to wait, as the central bank is expected to hold rates steady at its January 29 meeting. According to FactSet polling, more than 90% of economists predict that the Fed will maintain its current 4.25%-4.5% benchmark rate, delaying further reductions until at least May.
Why is the Fed Pausing Rate Cuts?
The Fed began cutting interest rates in September 2024, reducing the federal funds rate by one percentage point across three meetings. This helped lower borrowing costs for credit cards, mortgages, and loans. However, Fed Chair Jerome Powell has indicated that future cuts will be more limited, citing:
- Persistent inflation: Prices remain above the Fed’s 2% target.
- Uncertainty over Trump administration policies: Proposed tariffs and mass deportations could fuel inflation.
- Economic strength: The labor market and consumer spending remain robust.
“Inflation is still stubbornly above target, so the Fed is cautious about lowering rates further,” said Erasmus Kersting, an economics professor at Villanova University.
What Happens Next?
The Fed’s next rate decision will be announced on January 29 at 2 p.m. EST, followed by a press conference with Powell at 2:30 p.m. EST. While a pause is expected in both January and March, a rate cut in May remains possible, depending on economic conditions.
How Will a Pause Impact Borrowers?
A pause in rate cuts means consumers will not see immediate relief in borrowing costs. According to Matt Schulz, chief credit analyst at LendingTree:
“Anyone hoping for lower interest rates anytime soon will be disappointed. This applies to mortgages, auto loans, credit cards, and personal loans.”
For borrowers, experts recommend:
- Consolidating high-interest debt with a 0% balance transfer credit card or personal loan.
- Paying off outstanding credit card balances faster.
On the positive side, savers can still find solid returns on high-yield savings accounts, with some offering rates above 4%.
When Will Mortgage Rates Drop?
Despite the Fed’s three rate cuts in 2024, mortgage rates remain near 7%, close to 25-year highs. This is because home loan rates are influenced by multiple factors, including:
- 10-year U.S. Treasury bond yields.
- Broader economic trends.
- Policy uncertainty from the Trump administration.
“Mortgage rates will remain unchanged until markets have clarity on Trump’s policies regarding immigration, tariffs, and taxes,” said Austin Walker, CEO of A. Walker & Co.
Can Trump Influence the Fed?
At the World Economic Forum in Davos, President Trump said he would “demand that interest rates drop immediately.” However, experts note that Trump cannot directly control the Federal Reserve, which is an independent institution.
The Fed’s rate decisions are made by the Federal Open Market Committee (FOMC), which consists of:
- Seven members from the Fed’s Board of Governors.
- Four rotating Reserve Bank presidents.
- One permanent member from the Federal Reserve Bank of New York.
Powell has made it clear that he will not resign if asked by Trump, and the president does not have the power to fire or demote him. Powell’s term ends on May 15, 2026.
What to Expect for 2025?
Economists anticipate three 0.25% rate cuts in 2025, likely occurring in March, June, and September. However, uncertainty surrounding Trump’s policies could impact the Fed’s timeline.
“Heightened policy uncertainty is clouding the outlook,” said Gregory Daco, chief economist at EY. “The Fed will tread carefully.”
Conclusion
The Fed’s expected pause on rate cuts means borrowing costs will remain high for now. While savers can still benefit from solid returns, mortgage borrowers and credit card users may need to adjust their financial strategies until rates come down later in the year.
