The central bank now expects one rate cut in 2024, down from its forecast of three cuts in March.
High borrowing costs will put an even bigger strain on consumers already strained by the rising cost of living.
“It's not enough that inflation has gone down,” said Greg McBride, chief financial analyst at Bankrate.com. “Prices have not gone down, and that's the real strain on household finances.”
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Inflation has been a persistent issue since the COVID-19 pandemic, when price growth soared to its highest level since the early 1980s. The Fed responded with a series of interest rate hikes, raising its benchmark interest rate to its highest in decades.
The federal funds rate, set by the US central bank, is the interest rate that banks charge when they borrow and lend overnight. While it's not an interest rate that consumers pay, the Fed's actions still affect the borrowing and savings rates that consumers see every day.
Skyrocketing interest rates have caused borrowing costs to soar for most consumers, and more Americans are now falling behind on their payments.
From credit card and mortgage interest rates to car and student loans, take a look at what your monthly interest expenses are.
Most credit cards have variable interest rates, which are directly tied to the Fed's benchmark. In the wake of the rate hike cycle, the average credit card interest rate has risen from 16.34% in March 2022 to around 21% today, near an all-time high.
“Consumers need to understand that reinforcements aren't coming soon, so they're best off taking matters into their own hands when it comes to lowering credit card interest rates,” said Matt Schultz, chief credit analyst at LendingTree.
Schultz recommended calling your card issuer and asking for a lower interest rate, consolidating high-interest credit cards into a lower-interest personal loan to pay them off, or switching to a no-interest balance transfer credit card.
While 15- and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, inflation and shifting Fed policy have caused would-be buyers of new homes to lose a lot of purchasing power.
The average interest rate on a 30-year fixed-rate mortgage is just over 7%, up from 4.4% when the Fed began raising rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.
“Mortgage rates will likely continue to fluctuate going forward, and it's impossible to predict with any certainty what they will ultimately look like,” said Jacob Channell, senior economist at LendingTree. “That said, we'll likely have to get used to rates above 7% again, at least until economic conditions improve.”
Although auto loan interest rates are fixed, car prices are rising along with interest rates on new loans, which means payments are increasing and monthly payments are becoming less affordable.
The average interest rate on a five-year new-car loan is now above 7%, up from 4% in March 2022, and is not expected to change much in the future, according to Ivan Drury, director of insights at Edmunds.
“We expect rates to remain relatively stable for the time being until we get into the summer selling period later in the third quarter,” Drury said.
But recently, competition among lenders and increased incentives in the market have begun to ease some of the costs of buying a car, he added.
Federal student loan interest rates are also fixed, so most borrowers will not be immediately affected by the Fed's move. But undergraduates who took out Federal Direct Student Loans in 2023-24 will see their interest rates rise to 5.50%, up from 4.99% in 2022-23, and Federal Direct Undergraduate Loan interest rates for 2024-2025 will be 6.53%, the highest rate in at least the past decade.
Private student loans tend to have variable interest rates tied to the prime rate, Treasury bills, or other interest rate indexes, meaning borrowers are already paying higher interest rates—though how much higher they pay depends on the benchmark.
While central banks cannot directly influence deposit rates, yields tend to correlate with changes in the target federal funds rate.
As a result, interest rates on the highest-yield online savings accounts have fluctuated widely and are now paying more than 5% above the rate of inflation, a rare win for those building up a cash cushion, says Bankrate's McBride.
“Savers are sitting back and enjoying the best environment in more than 15 years,” McBride said.
Currently, the highest-yielding one-year term deposits offer yields of over 5.3%, which is on par with high-yield savings accounts.
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