Will the Federal Reserve cut interest rates this week? What experts say

Interest rates on mortgages and other loans are unlikely to drop significantly anytime soon.

The Federal Reserve meets Tuesday and Wednesday to consider the path of key rates in the weeks ahead. While a cut is anticipated sometime this year — most experts had hoped this week — any quick decrease this week is regarded as highly unlikely.

“The Fed’s standing pat because inflation hasn’t cooled off completely,” said Chris Thornberg, founding partner of Los Angeles-based Beacon Economics, who also cited other reasons.

As a result, “There’s a good chance that we’re going to need to get used to (mortgage interest) rates above 7% again, at least until we start getting better economic news,” said Jacob Channel, senior economist at LendingTree, which tracks interest rates.

The Fed increased its key rates 11 times starting in March 2022, but hasn’t made a change since July, when it set the rate range at 5.25% to 5.5%. Chairman Jerome Powell is expected to announce the Fed’s next steps Wednesday.

It was widely expected that by now the Fed would start to drop the rates, particularly since officials continue to say they expect three rate cuts this year. But it hasn’t happened yet, and mortgage rates in California last month were at their highest levels since November 2023.

Mortgage rates have continued to climb nationally. Last week, the average rate on a 30-year mortgage was 7.17%, the fifth straight weekly increase, according to Freddie Mac, which tracks rates. The rate applies to consumers who put 20% down and have excellent credit.

While the current rate is below the 7.79% peak in October, it’s still higher than mid-January’s 6.6%

The state’s housing market picked up some momentum early this year, but last month it struggled, said a report from Jordan Levine, senior vice president and chief economist for the California Association of Realtors.

He remained optimistic that the market would be healthy.

”While sales could be hindered by higher rates in the coming weeks, the uptick in recent months suggests that we could see a bounce back in housing activity when the market digests the latest inflation report,” he said.

Inflation and interest rates go together. The Fed is determined to get price increases down to a 2% annual level. In the most recent government report on inflation, prices over the year ending in March were up 3.5%. Personal consumption expenditures, the inflation figure the Fed watches closely, were up 2.7% for the 12 months ending in March.

That increase, up slightly from February’s annual rate, illustrates why the Fed has been cautious about lowering rates, and why there’s little confidence rates will drop much further this year.

Sung Won Sohn, president of SS Economics in Los Angeles, called the Fed’s next moves “critical yet uncertain.”

Does the Fed matter?

Several factors are involved in the path of interest rates, he said. The rate of inflation will matter, but so will the health of the economy and what Sohn called “broader economic and global uncertainties.”

Many economists contend the Fed’s actions on its target rate have little or no impact on mortgage interest rates.

The target rates govern overnight lending by banks.

“If they cut the federal funds rate, so what?” asked Thornberg. There are many other factors affecting rates, notably the ballooning federal deficit and the Fed’s strategy to keep credit tight.

Channel said that while cuts in the Fed’s target rate will probably mean lower mortgage interest rates, “plenty of other factors, like what’s happening in the bond market, and what’s going on with inflation influence mortgage rates as well,” Channel said.

Rates on other loans are also likely to remain steady. The average annual percentage rate on a new credit card offer is currently 24.66%.

It “isn’t likely to fall anytime soon,” even with the Fed holding rates steady or even dropping them, said Matt Schulz, credit analyst at LendingTree.

The rate has been steady recently, which Schulz called “a positive sign after nearly two full years of increases.”

But, he added, “those anticipating a dip in new credit card APRs in the near future should probably adjust their expectations.’