Don’t Expect Lower Interest Rates This Year, Economists Say

Key Takeaways

• Interest rates on key types of loans are expected to hover in their recent range, or increase as the year goes on, according to forecasters.

• Persistent inflation concerns among investors are likely to keep mortgage rates elevated.

• Rates for car loans, credit cards, and other consumer loans could increase if the Federal Reserve raises the fed funds rate later this year as expected.

If you’re waiting for interest rates to fall before making a major purchase, you might be waiting a while.

That’s according to economic forecasters, who see interest rates for consumer loans staying stubbornly high through the rest of the year, with a good chance that some will increase before 2027 arrives.

What This Means For The Economy

Higher interest rates tend to drag on the economy, discouraging borrowing and spending.

Mortgage Rates

The average rate for a 30-year fixed mortgage is expected to stay elevated at least for the rest of the year, according to economists at Fannie Mae.

The average rate for a 30-year mortgage will stay at 6.4% for the rest of the year, Fannie Mae predicted in its housing forecast this month. That would be close to the range that it’s hovered in since May, and just a touch below the 6.49% average offered by lenders this week, according to Freddie Mac.

Mortgage rates had been on a downward trajectory in the last year and a half, falling to around 6% in March from 7% at the outset of 2025. But then the war in Iran pushed up gasoline prices and revived inflation fears among investors, raising yields on 10-year Treasuries, which are linked to mortgage rates. And although the Iran war has since wound down, those inflation concerns are still lingering.

Those concerns were only reinforced last week when Kevin Warsh, the new chair of the Federal Reserve, used his first meeting of the Federal Open Market Committee to signal his determination to bring inflation down to the Fed’s 2% target.

Financial markets took that to mean Warsh is likely to raise the key fed funds rate at some point this year, which would put upward pressure on borrowing costs for all kinds of loans. Warsh’s comments threw cold water on hopes that the new Fed chair would lead the central bank to lower the fed funds rate in the near future. In short, homebuyers aren’t likely to see lower mortgage rates any time soon.

“In his post-meeting comments, Warsh acknowledged that the housing market is in a bind because mortgage rates remain high,” Jeff DerGurahian, chief investment officer and head economist at LoanDepot, wrote in a commentary. “But there was not much in his message that points to immediate relief for homebuyers. The takeaway is that 30-year fixed mortgage rates have not moved much, and we likely still have a long way to go before seeing a meaningful drop.”

Elevated mortgage rates have contributed to a trend of worsening home affordability in recent years, pushing monthly payments out of reach for many buyers and leading to a record number of young adults living at home with their parents instead of moving out.

Credit Cards, Car Loans, And Personal Loans

The outlook for credit cards, car loans, and personal loans also depends on the trajectory of the fed funds rate. Many kinds of bank loans are tied to the prime rate—the interest rate banks give to their best customers—which is, in turn, tied to the fed funds rate.

That means rates for those products could rise later in the year if the Fed raises interest rates as widely expected.

As of Tuesday, financial markets were pricing in a 62% chance of a rate hike in September, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data. The Fed typically raises rates in quarter-point increments, so borrowers could expect their related loans to have interest rates that are 0.25 percentage points higher.

Read the original article on Investopedia