NEW YORK (AP) — Mortgage rates, credit card rates, auto loan rates and adjustable-rate business loans are all likely to remain high, hurting consumer spending, after the Federal Reserve signaled Wednesday that it doesn't plan to cut interest rates until it has “more confidence” that consumer-level inflation is slowing to its 2% target.
The central bank kept its policy rate unchanged at around 5.3%, the highest level in 20 years since August last year.
Here's what you need to know:
What does this mean for borrowers?
Credit card interest rates are at or near record highs, and mortgage interest rates have more than doubled in recent years.
The current average credit card interest rate in the U.S. is 24.66%, unchanged from last month, but rates have increased in 24 of the past 26 months, according to LendingTree.
“Despite the Fed taking its foot off the gas, interest rates are unlikely to fall anytime soon,” said Matt Schultz, a credit analyst at LendingTree. “That's unfortunately likely to be the case over the next few months.”
Schultz said 0% balance transfer cards “remain the best weapon” in the fight against credit card debt, but they're “increasingly hard to get and fees are rising.”
Consumer delinquencies and total debt have also increased, making some banks reluctant to underwrite balance transfers and consumers will need good credit to get approved, he said.
What's in store for savers?
The Fed's interest rate hikes have kept savings account and certificate of deposit (CD) yields high, according to Ken Tammin, banking expert and founder of DepositAccounts.com, though “some banks have lowered deposit rates in anticipation of the Fed starting to cut rates later this year.”
Fixed deposit rates were the first to fall, and several online banks also began lowering their online savings account rates. Ally Bank cut its rate from 4.35% to 4.25%, and Discover cut its rate from 4.30% to 4.25%.
Still, most online banks are keeping their online savings account interest rates constant for 2024, and some online banks are still offering a 5.25% yield. The top online yield is currently 5.55%, and the average yield on an online one-year CD as of April 1 is 4.94%, according to DepositAccounts.com.
“Brick-and-mortar bank deposit rates continue to trend upwards,” Tumin said, noting that while average rates have risen sharply over the past year, “they are still very low compared to online rates.”
As of April 24, the average savings account yield across all banks and credit unions, the majority of which are brick-and-mortar, is 0.52%.
What about mortgages?
While the Fed doesn't directly set mortgage interest rates, it does influence them. The bond market, inflation, and other factors all contribute to the high mortgage interest rates consumers currently face.
The average rate on a 30-year fixed-rate mortgage recently rose above 7% for the first time since November. Jacob Channell, senior economist at LendingTree, says mortgage rates can fluctuate even if the Fed keeps its benchmark rate steady, and consumers should consider a lot of economic data before deciding whether to take out a mortgage.
“Despite relatively high mortgage rates and high prices, now may still be a good time to buy a home,” he said. “It's virtually impossible to time the market, and by the same token, many people won't be able to buy until the market is cheaper.”
Rising housing costs and rents have contributed to rapid inflation in recent months.
A Bankrate study found that renting a typical home is cheaper than buying in all 50 major U.S. metropolitan areas. As of February, the average monthly mortgage payment for an average-priced home in the U.S. was $2,703, compared with the average monthly rent nationwide of $1,979. That means the difference in cost between renting and buying a home is about 37%.
“It would be nice if the Fed could solve everything on its own, but it probably can't, at least not without a lot of wailing and gnashing of teeth,” Channell said.
I need to buy a car. What are the prospects for a car loan?
While auto prices remain stable through late 2023 and early 2024, Bankrate chief financial analyst Greg McBride predicts that auto loan interest rates will remain high for borrowers with poor credit. Borrowers with good credit may be able to get more competitive rates, but the Fed's decision will make auto loans more expensive even if auto prices fall. The last time the average auto loan has been this expensive is in 2008.
McBride predicts that by the end of 2024, five-year new-car loan rates will average 7.0%, and four-year used-car loan rates will reach 7.5%.
Over the past year, borrowers have faced especially steep monthly payments due to high interest rates, driving auto loan delinquency rates to their highest level in nearly 30 years. The average monthly auto loan payment in the fourth quarter of 2023 was $738 for a new car and $532 for a used car, according to credit reporting firm Experian.
According to Kelley Blue Book, the average price of a new car in March 2024 will be $47,218, and this price, combined with high interest rates, is causing many buyers to exit the new car market.
Is the Fed Making Progress in Curbing Inflation?
It's not going as fast as I thought it would.
Several recent reports on prices and economic growth have contradicted the Fed's belief that inflation is steadily easing.
Chairman Jerome Powell said, “Inflation did not make further progress toward our 2 percent objective.”
While inflation has fallen to 2.7% from a peak of 7.1%, average prices are still well above pre-pandemic levels, and the costs of services like rent, medical care, dining out and car insurance continue to rise.
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This article was first published on May 2, 2024. It was updated on May 29, 2024 to correct the spelling of LendingTree credit analyst Matt Schulz's last name.
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