Mortgage rates may remain above 6% 'even until 2026,' Walton Global EVP of Capital Markets Katie Hubbard has said

In 2024, Americans experienced some financial relief as inflation eased, prompting the Federal Reserve to lower interest rates three times. These cuts followed a period of aggressive rate hikes that had pushed borrowing costs to their highest levels in 23 years in an effort to combat surging prices.

Looking ahead to 2025, the impact on borrowers remains uncertain, particularly in the housing market, where mortgage rates have stayed stubbornly high despite the Fed's rate reductions. On January 2, Freddie Mac reported that the 30-year fixed mortgage rate rose to 6.91%, marking its highest level in nearly six months.

Adding to the financial uncertainty are the economic policies of President-elect Donald Trump. His agenda, which could include sweeping tariffs on foreign goods and additional tax cuts, has raised concerns among economists about a potential resurgence in inflation. Should inflation spike, the Fed might be forced to halt its rate-cutting efforts.

However, Trump’s tariff threats may serve primarily as leverage in trade negotiations, and inflation could continue to decline in 2025, giving the Fed room to cut rates further. Nonetheless, the uncertainty surrounding Trump’s policies leaves open questions for both investors and consumers.

“For much of the past year, investors have viewed rate cuts as a key factor in easing pressure on struggling sectors of the economy and broadening market growth,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company, in a research note.

Will the Fed Lower Rates Again in 2025?

Many economists believe the Fed will continue to cut rates in 2025, though expectations for the pace and number of cuts have tempered due to persistent inflation in late 2024.

In its December meeting, the Fed revised its projections, signaling only two rate cuts in 2025, down from four predicted in September. Some analysts, including those at Goldman Sachs, anticipate three cuts, with rates potentially ending the year in the range of 3.5% to 3.75%, compared to the current range of 4.25% to 4.5%.

Greg McBride, chief financial analyst at Bankrate, noted in an email, “Stubborn inflation and stronger-than-expected economic growth in 2024 will give way to slower but still solid growth in 2025.”

Will Mortgage Rates Decline in 2025?

Despite the Fed's rate reductions, mortgage rates have not seen corresponding declines. The typical 30-year fixed-rate mortgage now sits at 6.91%, higher than the 6.6% average in January 2024, per Freddie Mac data.

Mortgage rates are influenced by factors beyond the Fed’s benchmark rate, including the U.S. economy’s performance and fluctuations in the 10-year Treasury yield. Experts predict little relief for homebuyers in 2025.

“Continued economic growth and concerns about inflation and government debt will keep mortgage rates elevated,” McBride said. He forecasts that rates will average 6.5% by the end of 2025.

Lawrence Yun, chief economist for the National Association of Realtors, echoed this view, predicting 30-year fixed rates will hover between 6% and 7% throughout 2025.

Will Credit Card Rates Drop in 2025?

Credit card interest rates are expected to decrease alongside additional Fed rate cuts in 2025, but consumers with revolving balances will continue facing high costs. Lower card APRs may take up to three months to materialize following rate cuts, McBride explained.

By the end of 2025, the average credit card APR is projected to decline to about 19.8%, compared to the current average of 24.4%, according to LendingTree.

How Will CD and Savings Account Rates Change in 2025?

Savers benefited from higher interest rates during the Fed’s recent rate hikes, enjoying robust returns on savings accounts, CDs, and money market accounts. However, as the Fed continues to lower rates, returns on these accounts could decline in 2025.