The Federal Reserve has decided to hold interest rates steady, leaving the federal funds rate at a target range of 5.25 to 5.5 percent. This decision comes as inflation hit 3.4 percent year-over-year in December, after reaching the highest levels in decades at over 9 percent in mid-2022. Greg McBride, CFA, Bankrate chief financial analyst, says, “We’re getting closer to the point where the Fed will be comfortable trimming interest rates. It won’t be March, but could be soon thereafter if data continue to trend in the right direction.”
With the Fed’s pause on adjusting interest rates, many banks have also paused changing rates on their savings, CDs, and money market accounts. McBride suggests savers looking to maximize their earnings from interest should consider turning to online banks or the top credit unions, where rates are typically much better than those offered by traditional banks. He also advises that now may be a good time to lock in longer maturities on CDs, especially those in the 2-year to 5-year timeframe while they remain relatively high.
Mortgage rates have dropped quickly alongside the falling 10-year Treasury yield. McBride predicts, “We could end the year with mortgage rates below 6 percent. We’re not going back to 3 percent mortgage rates like 2021, but mortgage rates will look a whole lot better than what was seen just a few months earlier.”
The stock market has become more enthusiastic about stocks in the last couple of months, with the 10-year Treasury yield off its 52-week highs and expectations of a lower Fed funds rate in the near term. McBride says, “For stock investors, continued economic expansion is conducive to the profit growth that ultimately drives stock prices higher. Already lofty valuations may keep a lid on how much further appreciation we see this year.”
With the Fed’s decision, interest on variable-rate credit cards should remain more or less steady for now. McBride recommends prioritizing repaying high-cost credit-card debt and utilizing a zero percent or other low-rate balance-transfer offer to give those debt repayment efforts a tailwind.
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