US Q3 GDP Report: What Slower Growth Means for Loan Rates

Q3 GDP Growth Cools — Will Loan Rates Follow?

The United States is going through a period of economic slowdown throughout the third quarter of 2025.

Although GDP is still growing, the slower pace raises a number of questions about what the impact will be on loan interest rates.

For those living in the U.S., whether applying for a mortgage, car loan, or personal loan, these expectations matter a lot.

Macro scenario: slower growth, but not a recession

Forecasts for U.S. GDP growth had already been revised downward during 2025. For example, according to an EY report, real GDP growth in 2025 is expected to reach around 1.7%, slowing to 1.4% in 2026.

Deloitte, in turn, projects 50 basis points in rate cuts by the Federal Reserve by the end of 2025 but notes that long-term interest rates are likely to remain elevated due to inflation expectations.

Regarding the third quarter, “nowcast” models such as the Federal Reserve Bank of Atlanta’s GDPNow estimate annualized growth of about 3.8%.

However, many analysts warn that this figure could be revised downward once final data is released—especially due to factors like high tariffs, political uncertainty, and a weakening labor market.

In general, the consensus among agencies such as S&P Global is that the U.S. economy is entering a phase of moderate growth, negatively influenced by trade policy.

In other words, a deep recession is not expected in 2025, but Q3 will likely be weaker than previous quarters, signaling a more modest growth trajectory going forward.

Why this slowdown matters for loans

Monetary policy and expectations of rate cuts

To contain inflation, the Fed has kept short-term rates relatively high. If signs of economic weakening persist, the central bank may start cutting rates.

When expectations for rate cuts increase, long-term yields—which influence mortgage and auto loan rates—tend to fall as well.

Yield curve and spreads

Even if the benchmark rate is lowered, loan rates typically depend on the difference between short- and long-term rates (the yield curve), as well as risk premiums (spreads).

If investors believe credit risk is rising, spreads for personal, auto, or mortgage loans may remain high despite Fed cuts.

Default risk and risk aversion

With slower economic growth, future income expectations decline, and uncertainty about borrowers’ ability to repay debt increases.

This often leads banks to tighten credit conditions or charge higher interest rates to compensate for the additional risk.

Competition and banking liquidity

During strong economic periods, banks compete for customers with lower rates. During slowdowns, they become more cautious and less willing to narrow margins, reducing the “discount” they might otherwise offer below benchmark rates.

How this has played out in the U.S. in 2025

Recently, 30-year mortgage rates in the U.S. have edged down slightly, reaching around 6.30% (from 6.34%), according to data from Freddie Mac.

This small drop is already seen as a relief for the housing market, which had been struggling with historically high rates.

Even so, homebuying demand remains subdued, as many potential buyers continue to wait for lower rates before committing to a mortgage.

On the institutional side, the Federal Reserve is under pressure to deliver further rate cuts in 2025.
John Williams, president of the New York Fed, has voiced support for additional cuts, citing risks of a labor market slowdown.

The OECD also sees room for up to three more rate cuts by mid-2026 if inflation remains under control.

Future outlook: optimistic, neutral, and pessimistic scenarios

Neutral scenario (most likely)

• The Fed delivers gradual 25-basis-point cuts at its remaining 2025 meetings, aligning with Deloitte’s expectations.
• Loan rates fall moderately, especially for mortgages and real estate financing, but remain historically “high” through 2026.
• The yield curve flattens, helping mid-term loans (5–10 years) record slight decreases.

Optimistic scenario

• Inflation cools quickly, giving the Fed room for more aggressive cuts.
• The economy shows resilience and avoids a technical recession.
• Credit spreads narrow along with declining perceived risk, leading to substantially lower rates on personal, auto, and mortgage loans.

Pessimistic scenario

• The economy weakens more than expected, with certain sectors already showing contraction.
• The Fed is slow to react, fearing a reversal of inflation progress, which keeps rates elevated for longer.
• Default rates rise and credit spreads widen, keeping loans expensive even with moderate Fed cuts.

Written by

Gabriel Gonçalves