For months, the Federal Reserve has predicted interest rate cuts that would provide much-needed relief to Americans burdened with expensive mortgages and credit card debt.
But at a press conference this week, Fed Chairman Jerome Powell cast doubt on whether those cuts would come through after all, saying the central bank needed to “gain more confidence” that inflation was trending toward acceptable levels.
Experts told ABC News that the prospect of higher interest rates for a long period of time could exacerbate the economic pain already caused by rising borrowing costs, making loans more expensive even as consumers are still enduring higher prices.
Americans with savings accounts and other cash funds tend to be wealthier, but will still benefit from strong yields, experts added.
“It's ordinary people who are suffering the most,” James Cox, financial advisor and managing partner at Virginia-based Harris Financial Group, told ABC News. “Not only are high interest rates eating away at their excess income, but inflation is hurting them in their everyday lives.”
The Fed decided to keep interest rates unchanged at its meeting on Wednesday, citing a lack of recent progress in price increases, which have fallen significantly from a peak of 9.1% but are still more than a percentage point above the Fed's 2% target rate.
Since last July, the federal funds rate has been hovering between 5.25% and 5.5%, its highest level in more than 20 years.
During that period, the cost of borrowing everything from credit cards to student loans to mortgages rose.
According to a February report from the Federal Reserve Bank of New York, Americans will owe more than $1 trillion on credit cards by the end of 2023, a new record.
Jason Taylor, an economics professor at Central Michigan University, told ABC News that credit card borrowers risk inflated costs if interest rates remain high.
As of Wednesday, the average interest rate on a credit card was a staggering 20.6%, according to data from Bankrate.
“If interest rates stay high for an extended period of time, it will hurt people with a lot of credit card debt,” Taylor said.
Federal Reserve Chairman Jerome Powell speaks to the press at the end of the Federal Open Market Committee (FOMC) meeting in Washington, DC on May 1, 2024. Saul Loeb/AFP via Getty Images
Similarly, mortgage rates are likely to remain high, creating difficulties for would-be homebuyers who have faced rising loan costs for two years.
According to data from Freddie Mac, 30-year fixed-rate mortgages averaged 7.22 percent in the week ending Thursday, the highest level since November.
When the Fed implemented the first of its current series of rate hikes in March 2022, the average rate on a 30-year fixed mortgage was just 3.85%, according to data from Freddie Mac.
“It's very hard for first-time homebuyers to buy real estate,” Cox said. “It's very hard to achieve the American dream.”
But some people may benefit from higher interest rates for a longer period.
This interest rate directly benefits savers, who stand to benefit from higher interest rates on their bank accounts. Wealthy seniors tend to hold a larger portion of their assets in savings and other cash funds.
Some high-yield savings accounts offer interest rates above 5%, which is well above the 3.5% inflation rate, according to data from NerdWallet.
“Money appears out of nowhere with no risk and just increases your wealth,” Cox said.
He added: “Interest is like energy; it has an equal and opposite reaction. For borrowers its effects are terrible, but for savers its effects are great.”