What’s the outlook for interest rates?

The business of making forecasts can be a slippery slope. But some investors are willing to “put their money where their mouth is” when it comes to making predictions about what’s next for short-term interest rates, so it can be helpful to check out what they think is going to happen.

As you can see, speculators anticipate the Fed will lower short-term rates three times in the next 12 months from the current range of between 3.75 percent and 4 percent. And these speculators can place trades if they have a strong enough conviction about the future

Market Outlook for Interest Rates

Market participants anticipate the Fed will cut short-term rates three times in the next 12 months.

Following the Fed’s October meeting, Fed Chair Powell said he wasn’t certain about whether the Fed would adjust rates again in 2025, which jolted the financial markets. Speculators had assumed there was one more rate change “penciled in” for 2025, so the news caught some by surprise.

“A further reduction in the policy rate at the December meeting is not a foregone conclusion,” Powell said.

That’s an important sentence for all investors to keep in mind.

The Fed’s job is to constantly monitor the economy as it sets monetary policy. There are no foregone conclusions—only speculators who attempt to anticipate what’s next.

If rates do trend lower, that may affect everything from mortgage rates to credit cards to automobile loans. It may also prompt a review of some fixed-rate investments.

But let’s not put the cart in front of the horse!

If Fed Chair Powell is not ready to make any conclusion, it’s best for everyone to adopt a wait-and-see approach before making any decisions.