Traders are waiting for a rate cut in December

The Federal Reserve is likely to cut interest rates by a quarter point on Wednesday – its third straight cut – but investors shouldn’t expect the central bank to maintain the same pace next year, UBS says.

“Overall, we believe investors should expect a slowing in the pace of rate cuts in 2025 and near-term volatility as markets recalibrate the Fed’s stance,” wrote Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management, in a Report from Wednesday.

There is a silver lining in this short-term market turmoil because investors who have been underinvested in stocks can snap them up, she said.

Investors should also invest their excess cash in high quality and diversified fixed income and equity income strategies, she added.

“These can provide income generation and portfolio diversification as lower interest rates are likely to reduce cash returns next year,” Marcelli said.

—Darla Mercado

The Federal Reserve has cut interest rates by three-quarters of a point since the end of its September meeting, but borrowers aren’t really seeing much savings yet.

According to MND, the interest rate on a 30-year fixed-rate mortgage is 6.95% as of the week of December 13th. That’s an increase of 4.29% for the week of March 11, 2022 – and an increase of 6.12% for the week of September 13, 2024. Mortgage rates are tied to the 10-year Treasury note yield, which is in this autumn has risen.

Credit card interest rates haven’t changed much since the Fed began its rate cuts. According to Bankrate, they were at 20.35% last week. This is down from 20.78% in September but up from 16.34% in March 2022.

However, savings returns have fallen over the past three months. According to Haver, the annual percentage yield on a five-year certificate of deposit was 2.86% for the week of Dec. 13. That’s a slight decrease from 2.87% in mid-September, but a significant increase from 0.50% in March 2022.

—Darla Mercado, Nick Wells

The Federal Reserve is widely expected to cut interest rates by a quarter point on Wednesday. What is less certain is what will happen with interest rates in the new year and beyond.

Although inflation has cooled since the Fed began its rate hike campaign in March 2022, the latest phase is proving difficult. November’s consumer price index reflected a 12-month inflation rate of 2.7%. It’s still a long way from the Fed’s inflation target of 2%.

Stubborn inflation and a still-resilient economy are causing some on Wall Street to temper their expectations for rate cuts in 2025. December’s dot plot will give traders a sense of the direction Fed policymakers are heading in the new year.

Read more from CNBC’s Jeff Cox on what to expect from the Fed on Wednesday.

—Darla Mercado