When Will the Fed Lower Interest Rates?

If you carry a balance on your revolving lines of credit or have been thinking about purchasing a home or car, you’ve probably noticed that rising interest rates are impacting your finances. The Federal Reserve began raising interest rates in March 2022, and hasn’t stopped since then. At every meeting thus far, the Fed has announced additional rate hikes. Curious about when interest rates might begin to come back down? Here, I share a quick recap of what you need to know about the Fed’s decisions to raise rates, and when (and why) the agency might change course:?

Why the Fed Started Raising Rates

The economy has done quite an about-face since the Fed slashed rates in 2020 in response to the coronavirus pandemic. Since 2021, prices have been rising more quickly than expected. A modest rise in prices is normal, and the Fed’s goal for inflation is 2% each year. However, inflation hit 9.1% in July of 2022–a level not seen since 1981.

To combat rampant inflation, the Fed introduced the first of nine consecutive rate increases in March 2022. In theory, higher interest rates can tame inflation by reducing demand as borrowing gets more expensive. The current federal funds rate is 4.75-5.00%, up from 0.5% one year ago. The data shows that the Fed’s action is starting to have an impact, as the consumer price index (CPI) has risen 0.1% in March and 5% from one year ago. While still above the Fed’s inflation target of 2%, this is progress. Rising interest rates are also beginning to have an impact on the labor market, as March 2023 added the smallest number of job openings since 2020.

Will Rates Come Back Down??

There’s no denying that higher interest rates take a bite out of your buying power. With rates on the popular 30-year fixed rate mortgage reaching as high as 7% in late 2022, many would-be buyers are understandably reluctant to keep shopping. It’s impossible to say with complete confidence if and when rates will come back down, but many forecasts are anticipating some relief for buyers toward the end of this year. Mortgage Bankers Association asserts that rates have already peaked and predict that 2023 will conclude with the average rate around 5.2%.

If you’re interested in becoming a homeowner but have been discouraged by the Fed’s aggressive action to curb inflation, you’re not alone. Many have been frustrated and disappointed by the timing, but signs point to falling rates on the horizon. Whether you’re ready to purchase now or simply have questions about your borrowing options, I can help. Please contact me at [email protected] or by phone at 303-579-5517 to learn more.?