When will interest rates come down?

As I write this, interest rates stand at their peak barring any unforeseen gasoline being poured on the inflation fire. Inflation has been cooling off (disinflation) as has the economy (more unemployment), which will spur the federal reserve to begin cutting rates sooner rather than later. Rate cuts stimulate a slowing economy while rate hikes cool off a strong economy and high inflation.

The likely scenario is that the Fed will begin cutting rates in September 2024 and rate cuts will continue through 2025, potentially into 2026, before landing at the Fed’s terminal rate (neither stimulating or cooling off). The current Fed Funds Rate is between 5.25% and 5.5% and if all goes well with the economy, the Fed would like to shave two full percentage points off that rate, down to the mid 3%s (a reduction of 200 basis points). This decrease will be gradual so as not to re-ignite inflation or disrupt the economy.

While the Fed’s forecast is never a sure thing, if you’re planning to borrow money soon, you may see lower rates in the coming months than what you see advertised currently. If you were forced to borrow during peak rates you may also see opportunities to refinance your loans to a lower rate. The downside will be experienced by savers in the form of lower rates earned on savings, money market accounts and bonds.