The Federal Reserve has finally shown signs of a plateau in interest rates. However, interest rates are still breaking records, and it is not a given that personal loan rates will fall anytime soon.
While the exact timeline is unknown, the majority of economists agree that the Fed could start cutting rates as early as 2024.
Interest rates reached their highest level in more than two decades
After the meeting of October 31 and November 1, the Federal Reserve made the decision to keep interest rates stable. This is the third time in the past four meetings that the Fed has kept rates steady. However, interest rates are still at a record high after the past eleven rate hikes.
While the average interest rate on personal loans is currently at a high 11.54 percent, many experts are wondering whether the Fed is done raising rates as inflation slowly declines.
Most economists predict that interest rates will fall in 2024; some say 2025
Bankrate’s quarterly Economic Indicator Survey found that 96 percent of responding economists predict the Fed will start cutting rates in 2024, while 6 percent predicted borrowers won’t see any rate cuts until 2025.
Mark Hamrick, senior economic analyst at Bankrate and Washington bureau chief, advised that borrowers play the long game when it comes to a Fed rate cut.
Rather than seeing personal loan rates shift dramatically in one direction or the other, it’s more likely that rates will stabilize or remain high — as we’re seeing now — until there is a change in the economic outlook, says Hamrick.
The future of borrowing costs is still speculative, but the end may be in sight
While it would be ideal for potential borrowers to have a concrete timeline on when personal loan rates are expected to drop, it appears that the end of rate hikes is in sight.
According to the Federal Reserve’s projections, interest rate cuts won’t happen until 2024. However, it is unlikely that there will be massive rate hikes. Whether or not the Fed will start cutting rates depends on inflation.
Although inflation is slowing, Bankrate’s survey of third-quarter economic indicators shows that most financial experts (41 percent) do not expect inflation to fall to the Fed’s 2 percent benchmark through 2025.
“If there’s one lesson we’ve had in recent years, it’s that we live in a world of rapid change and volatility,” says Hamrick. However, he argues that if the economy holds up, the cost of borrowing could become more easily accessible at a lower cost.
“But this is speculation at this point. How the future will unfold remains to be seen,” he concludes.
Borrowers increasingly need to be more creditworthy to be approved
Should the Fed follow forecast trends and carry high interest rates into 2024, potential personal loan borrowers will likely need to have excellent credit and a near-impeccable financial portfolio to be approved by most lenders.
If interest rates were to fall, lenders would be more likely to offer more lenient approval odds. However, with the potential for at least one more rate hike this year, lenders are expected to remain tight in an effort to protect themselves.
“The other factor working against borrowers is the tightening of lending by financial institutions,” Hamrick said. He explains that this was already evident before the 2023 bank failures in March and that the closer approval dynamics between lenders and borrowers have become more apparent.
“This means borrowers need to be reasonably well qualified and have higher credit scores,” he says, adding that the cost of high financing will remain for a while.
