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The Fed is set to hit the pause button on rate cuts, for now. Here’s the impact on your money.
Borrowers hoping for more financial relief from the Federal Reserve may have a wait on their hands, as the central bank is expected to hit the pause button on additional rate cuts at its Jan. 29 meeting.
The Fed is expected to hold its benchmark rate steady on Wednesday at its current range between 4.25% to 4.5%, according to more than 9 in 10 economists polled by financial data site FactSet. Most economists also predict the Fed will hold off on cutting at its March 19 meeting, which means the next rate cut might not occur until the central bank’s May 7 meeting, FactSet data shows.
A January pause would mark an end, at least temporarily, to the Fed’s flurry of rate cuts that started in September 2024 which have pushed down the federal funds rate by one percentage point. That’s helped trim borrowing costs for credit cards, home equity lines of credit and other debt, providing some respite to inflation-pinched consumers and businesses.
But in December, the Fed signaled that it expects fewer cuts in 2025 than it had earlier projected, with Fed Chair Jerome Powell pointing to inflation that remains above the central bank’s goal of an annual 2% rate. On top of that, economists say it’s likely the Fed wants to take a wait-and-see approach to the Trump administration’s policies such as adding new tariffs and widespread deportations of immigrants, which could both prove inflationary.
“The reason why the Fed isn’t jumping the gun at lowering the rates faster and further is that, on one hand, inflation is not gone. They looked carefully at the data, and it is still stubbornly above target, so there is concern if you lower rates further, inflation would tick up again,” Erasmus Kersting, a professor of economics at Villanova University, told CBS MoneyWatch.
Secondly, he added, “Tariffs or mass deportations are expected to be inflationary. For that reason, the Fed is also right to be careful about lowering rates.”
Here’s what to know about a rate pause by the fed.
When does the Fed make its next rate decision?
The Federal Reserve will announce its rate decision at 2 p.m. EST on Jan. 29, followed by a press conference with Fed Chair Jerome Powell at 2:30 p.m. EST.
How will a pause on rate cuts impact my money?
The Fed cut its benchmark rate three times last year, kicking off with a jumbo 0.5 percentage point reduction in September. That was followed by two consecutive 0.25 percentage point cuts: one at its November meeting and a second at its December meeting.
But a pause in early 2025 means that consumers can’t expect additional near-term relief on borrowing costs, experts say.
“Anyone hoping for the Fed to ride in as the cavalry and rescue you from high interest rates anytime soon is going to be really disappointed,” said Matt Schulz, chief credit analyst at LendingTree, in an email. “That’s true whether you’re talking about mortgages, auto loans, credit cards or most anything else.”
Because credit card rates and other borrowing costs aren’t likely to change, consumers should work on getting their higher-interest debt under control, Schulz added. Turning to a 0% balance transfer credit card or consolidating credit card debt with a personal loan can prove helpful with lowering interest payments, he noted.
If there’s a bright side, it’s for savers, given that they should still be able to find solid rates on high-yield savings accounts, even though they’ve declined since the Fed began trimming its benchmark rate last year, Schulz said. Some savings accounts are still paying above 4%, down from about 5% a year ago.
“Returns on high-yield savings accounts have fallen from their record levels as the Fed has moved to lower rates. However, as the Fed pauses, that decline should slow as well,” he said.
When will mortgage rates come down?
One of the disappointments for house hunters, as well as homeowners who want to refinance into lower rates, has been stubbornly high mortgage rates. Despite the Fed’s three rate cuts last year, the average 30-year home loan remains near 7%, near 25-year highs.
Mortgage rates haven’t declined despite the Fed’s cuts because home loans are based on a number of factors besides the federal funds rate, including broader economic trends and changes in the yield for the U.S. 10-year Treasury bond.
Given concerns from economists that President Trump’s plans could prove inflationary, mortgage rates might not come down anytime soon, experts said.
“The general consensus is that rates will likely remain unchanged until the market has more clarity around potential policy impacts as it relates to immigration, taxes and tariffs,” noted Austin Walker, CEO of A. Walker & Co., a housing finance company.
Will interest rates go down under President Trump?
Last week at the World Economic Forum’s annual event in Davos, Switzerland, Mr. Trump said he would “demand that interest rates drop immediately, and likewise, they should be dropping all over the world.”
It’s unlikely that Mr. Trump could influence the Fed to lower rates, as the central bank is an independent institution that bases its decisions on economic data, rather than orders from elected officials, experts say.
Rates are set by the Federal Open Market Committee (FOMC), which consists of 12 members — seven members come from the Fed’s Board of Governors; four stem from the eleven Reserve Bank presidents, who each serve one-year terms on a rotating basis, and one FOMC member is the president of the Federal Reserve Bank of New York.
Powell, meanwhile, has said he won’t step down if Mr. Trump, who has previously criticized Powell’s performance, asks him to resign, adding that the president doesn’t have the power to fire or demote the Fed chair. His term as Fed chair ends May 15, 2026.
At the same time, economists are forecasting more rate cuts in 2025, but not until May or even later, according to FactSet polling. But one wild card is whether inflation could tick higher in early 2025 due to the Trump administration’s policies.
“Importantly, the outlook is clouded by heightened policy uncertainty as a new administration takes office,” said EY Chief Economist Gregory Daco in an email. Daco added he is forecasting three 0.25 percentage point cuts this year — in March, June and September. “This year, we expect the Fed will tread carefully.”
