Americans will have no respite from soaring interest rates until at least the middle of next year, claims a new poll of 100 economists.
The Federal Reserve this month decided to hold its benchmark funds rate steady at its current 22-year-high of between 5.25 and 5.5 percent.
Officials are set to meet once more before the end of the year on December 12-13 where they will decide whether to hike rates again.
But a new poll by Reuters found 87 out of 100 economists believe interest rates will not rise again and that the Fed’s most aggressive tightening cycle in four decades has come to an end.
Some 86 percent said they could not forecast rates going down in the first quarter of next year – but 58 percent agreed they would start to fall by the middle of next year.
The Federal Reserve today announced interest rates will remain at their current level of between 5.25 and 5.5 percent
Officials are set to meet once more before the end of the year on December 12-13 where they will decide whether to hike rates again. Pictured: Fed Chairman Jerome Powell
The Fed’s relentless campaign to hike interest rates has taken borrowing costs from an all-time low of 0.5 percent in April 2020 to 5.5 percent today. The move was intended to bring down rampant inflation which is currently hovering at 3.7 percent.
In theory, higher interest rates should encourage consumers to spend less and therefore slow down price increases.
But economists have been surprised by the resilience of consumer spending in the face of higher living costs. The trend is thought to be driven by red-hot labor market which saw 336,000 jobs added in September, keeping the currently unemployment rate at 3.8 percent.
Fed officials have consistently said interest rates need to remain higher for longer to bring price pressures down.
One thing that might justify an earlier rate cut is a severe economic downturn. But that is looking unlikely any time soon after the world’s largest economy posted a near 5% annualized growth rate last quarter.
Still, gross domestic product (GDP) growth was expected to slow to an annualized pace of 1.1 percent this quarter and average just 1.1 percent in 2024.
One of the biggest victims has been mortgage rates which currently stand at a multi-decade high of 7.79 percent, according to the latest data from Government-backed lender Freddie Mac.
The rates offered on 30-year fixed-rate mortgages are not directly influenced by the Fed’s benchmark rate but do track the yield on 10-year Treasury bonds.
The bonds are influenced by several factors including predictions around inflation, Fed actions and investor reactions as a result.
Other home loans such as Adjustable-Rate Mortgages (ARMs) – which are gaining popularity – are more closely tethered to the Fed’s moves.
The announcement means that households once again have respite from relentless upticks to borrowing costs
Meanwhile the average interest on a credit card is 20.72 percent, according to figures from Bankrate.
Credit cards are one of the few borrowing vehicles to offer a variable rate – meaning they change in-line with the Fed’s benchmark figure.
Meanwhile the cost of auto-lending has also shot up. The average rate on new car loans in September was 7.4 percent, data from Edmunds.com shows.
But in brighter news, higher interest rates should ideally give rise to better interest deals on savings accounts – though this does not always align.
According to Bankrate, the average yield for a savings account is 0.59 percent APY.
However a handful of banks are offering rates closer to the Fed’s 5 percent mark. For example, Marcus by Goldman Sachs offers 4.15 percent APY – as does tech giant Apple on its Apple Card Saving account. The Apple account is also a joint partnership with Goldman Sachs.
