Kiplinger Interest Rates Outlook: Federal Reserve Will Pause Rate Cuts for a While
The Fed suggests that it is not likely to cut rates further unless the jobs market weakens more.
Kiplinger’s Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or to subscribe for the latest trends and forecasts from our highly experienced Kiplinger Letter team.
The Federal Reserve kept short-term interest rates unchanged at 3.5% to 3.75% at its policy meeting on January 28. Chair Jay Powell cited solid recent economic growth and the higher-than-desired inflation rate as reasons for waiting and watching before making any further cuts. Also, the urgency to cut is less now, after the dip in the unemployment rate in December signaled that while the labor market remains subdued, it is stabilizing and not worsening.
We expect that the Fed will continue to stand pat at its policy meetings this spring, unless the labor market takes a turn for the worse. While Fed governors Waller and Miran voted to further cut rates at the January 28 meeting, there were 10 votes in favor of waiting. A new Fed Chair will take over from Powell in May and could very well enact a cut at the June 17 policy meeting, but if economic growth remains solid, the other committee members will likely resist more than a token cut or two this year. However, a downward revision of last year’s job gains is expected to be released as part of the January jobs report on February 6, and if that combines with a poor January report, that could up the odds of a rate cut at the next Fed policy meeting on March 18.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The 10-year Treasury yield is still hovering around 4.2%. Right now, downward pressures from fears of an economic downturn because of a weak labor market are being balanced by upward pressures from continued economic and productivity growth, and an inflation rate that is still a bit too high at 2.7%. The 10-year yield is often used as the benchmark for setting mortgage and auto loan rates.
The bond market’s yield curve will become fully upward sloping sometime this year, for the first time since 2021. Bond investors’ concern that an economic slowdown looms is shown by the fact that current one- to three-year Treasury notes have lower yields than short-term Treasury bills that mature in a few months. As the uncertainties surrounding the path of the economy gradually get resolved, fears will diminish and medium-term rates are likely to pick up a bit. The long end of the yield curve is likely to stay elevated.
Mortgage rates have dipped as the 10-year Treasury’s yield has stayed around 4%. 30-year fixed-rate mortgages are currently around 6.1%. 15-year loans are at 5.5% for borrowers with good credit. If the economy weakens, then rates should decline, but odds are that rates at the end of 2026 will be close to where they are today.
Top-rated corporate bond yields have also been following Treasury yields. AAA-rated long-term corporate bonds are yielding 4.7%, BBB-rated bonds are at 5.0% and CCC-rated bonds are at 12.0%. CCC-rated bond rates tend to rise when the risk of recession rises, and fall when either the economy strengthens or the Fed cuts rates, which eases financing costs for businesses that are heavily indebted.
Related Content
-
Nasdaq Drops 172 Points on MSFT AI Spend: Stock Market TodayMicrosoft, Meta Platforms and a mid-cap energy stock have a lot to say about the state of the AI revolution today.
-
Don't Overpay the IRS: 6 Tax Mistakes That Could Be Raising Your BillTax Tips Is your income tax bill bigger than expected? Here's how you should prepare for next year.
-
Flashback Finance: The Cost of Retiring the Year You Were BornJust like groceries, gas and home prices, the cost of retiring is subject to inflation. Here is a look at what it cost to retire in the year you were born.
-
Nasdaq Drops 172 Points on MSFT AI Spend: Stock Market Today
Microsoft, Meta Platforms and a mid-cap energy stock have a lot to say about the state of the AI revolution today.
-
How One Hospital Visit Overseas Could Wreck Your FinancesProper planning can give you peace of mind and protection, regardless of what happens on your trips.
-
It's Time to Rethink What 'Aging Well' MeansDon’t fall into the trap of thinking there is a "right way" to age. Here's how to reframe aging in a healthy, achievable way.
-
Your Guide to Financial Stability as a Military Spouse, Courtesy of a Financial PlannerThese practical resources and benefits can help military spouses with managing a budget, tax and retirement planning, as well as supporting their own career
-
3 Steps to Keep Your Digital Data Safe, Courtesy of a Financial PlannerAs data breaches and cyberattacks increase, it's vital to maintain good data hygiene and reduce your personal information footprint. Find out how.
-
Here's Why You Can Afford to Ignore College Sticker PricesCollege tuition fees can seem prohibitive, but don't let advertised prices stop you from applying. Instead, focus on net costs after grants and scholarships.
-
S&P 500 Tops 7,000, Fed Pauses Rate Cuts: Stock Market TodayInvestors, traders and speculators will probably have to wait until after Jerome Powell steps down for the next Fed rate cut.
-
We Retired at 70 With $4.3 Million. My Wife Won't Spend 'Our Grandkids' Inheritance,' but I Want to Travel.I want to travel while we are still healthy, but my wife wants to pass down our wealth. Who is right?
