The Weekly Update 3/21/2025 Written by Brittany Jarocki CFP, (Jim's business partner, daughter and the succession plan Jim hopes he never needs).
There has been a lot of conversation swirling around about the Federal Reserve’s stance on interest rates, specifically pertaining to the thought that rates are “too high”.
Most folks are waiting (not so) patiently for the Fed to decrease rates, knowing that an added benefit will be lower mortgage interest rates.
The thought process is that lower mortgage interest rates will stimulate the housing market and provide opportunity for those with higher mortgage interest rates to refinance, just as we saw in 2021.
My response to these people is, be careful what you wish for…
It is very likely that we will never see the low interest rates of 2021 in our lifetime again. If we do, it would likely mean that the US economy is in shambles. Low interest rates are used to ease economic pressure on the general public and work to stimulate the economy. So, bringing rates down to a drastically low level like we saw in 2021 would mean that unemployment is high, the economy is weak, and people are struggling to make ends meet.
A more realistic expectation is that we see rates drop from today’s rate of 4.33% (2/25/25) to about 3.5% over the next two years. The target Fed Funds Rate of 2.5% is likely something we will not reach again. It is my opinion that the Fed should adopt 3.5% as the new “target” for their rate.
The Federal Reserve only acts with the information that they have. For now, the economy is strong as measured by Personal Consumption Expenditures (PCE), Consumer Price Index (CPI), Employment, etc. These numbers have been strong, but there are indications of softening. If they do continue to soften, perhaps a 0.25% rate cut would happen during 2025, but unlikely more than one.
As always, we remain focused and ready for action as needed here at The Wealth Strategies Group. Our team and I are available to discuss this concept with you. Just call, email or stop by the office and say “Hi”!
Respectfully,
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
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