The Federal Reserve holds interest rates steady, offers no relief from high borrowing costs — what that means for your money

The

Federal
Reserve
announced
Wednesday
it
will
leave

interest
rates
unchanged
as
inflation
continues
to
prove stickier than
expected.

However,
the
move
also
dashes
hopes
that
the
Fed
will
be
able
to
start
cutting rates soon
and
relieve
consumers
from
sky-high
borrowing
costs.

The
market
is
now
pricing
in
one
rate
cut
later
in
the
year,
according
to the
CME’s
FedWatch measure
of
futures
market
pricing.
It
started
2024
expecting
at
least
six
reductions,
which
was “completely
fantasy
land,”
said
Greg
McBride,
chief
financial
analyst
at
Bankrate.com.

That
change
in
rate-cut
expectations
leaves
many
households
in
a
bind,
he
said. “Certainly
from
a
budgetary
standpoint,
not
only
is
inflation
still
high
but
that
is
on
top
of
the
cumulative
increase
in
prices
over
the
last
three
years.”

“Prioritizing
debt
repayment,
especially
of
high-cost
credit
card
debt,
remains
paramount
as
interest
rates
promise
to
remain
high
for
some
time,”
McBride
said.

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The
strong
U.S.
job
market
is
in
a ‘sweet
spot,’
economists
say

Inflation
has
been
a
persistent
problem
since
the
Covid-19
pandemic,
when
price
increases
soared
to
their
highest
levels
since
the
early
1980s.
The
Fed
responded
with
a
series
of
interest
rate
hikes
that
took
its
benchmark
rate
to
its
highest
level
in
more
than
22
years.

The
federal
funds
rate,
which
is
set
by
the
U.S.
central
bank,
is
the
rate
at
which
banks
borrow
and
lend
to
one
another
overnight.
Although
that’s
not
the
rate
consumers
pay,
the
Fed’s
moves
still

affect
the
borrowing
and
savings
rates
they
see
every
day.

The
spike
in
interest
rates
caused
most
consumer borrowing
costs
to
skyrocket,
putting
many
households
under
pressure.

Increasing
inflation
has
also
been
bad
news
for
wage
growth,
as real
average
hourly
earnings rose
just
0.6%
over
the
past
year,
according
to
the
Labor
Department’s Bureau
of
Labor
Statistics.

Even
with
possible
rate
cuts

on
the
horizon,
consumers
won’t
see
their
borrowing
costs
come
down
significantly,
according
to
Columbia
Business
School
economics
professor
Brett
House.

“Once
the
Fed
does
cut
rates,
that
could
cascade
through
reductions
in
other
rates
but
there
is
nothing
that
necessarily
guarantees
that,”
he
said.

From
credit
cards
and
mortgage
rates
to
auto
loans
and
savings
accounts, here’s
a
look
at
where
those
rates
could
go
in
the
second
half
of
2024.

Since
most credit
cards have
a
variable
rate,
there’s
a
direct
connection
to
the
Fed’s
benchmark.
In
the
wake
of
the
rate
hike
cycle,
the
average
credit
card
rate
rose
from
16.34%
in
March
2022
to
nearly
21%
today
— an
all-time
high.

Annual
percentage
rates
will
start
to
come
down
when
the
central
bank
reduces
rates,
but
even
then
they
will
only
ease
off
extremely
high
levels.
With
only
a
few
potential
quarter-point
cuts
on
deck,
APRs
aren’t
likely
to
fall
much,
according
to
Matt
Schulz,
chief
credit
analyst
at
LendingTree.

“If
Americans
want
lower
interest
rates,
they’re
going
to
have
to
do
it
themselves,”
he
said.
Try
calling
your
card
issuer
to
ask
for
a
lower
rate,
consolidating
and
paying
off
high-interest
credit
cards
with
a
lower-interest personal
loan or
switching
to
an
interest-free
balance
transfer
credit
card,
Schulz
advised.

Although
15-
and
30-year
mortgage
rates
are
fixed,
and
tied
to
Treasury
yields
and
the
economy,
anyone
shopping
for
a
new
home
has
lost
considerable
purchasing
power,
partly
because
of
inflation
and
the
Fed’s
policy
moves.

The
average
rate
for
a
30-year,
fixed-rate
mortgage
is
just
above
7.3%,
up
from
4.4%
when
the
Fed
started
raising
rates
in
March
2022
and
3.27%
at
the
end
of
2021,
according
to
Bankrate.

“Going
forward,
mortgage
rates
will
likely
continue
to
fluctuate
and
it’s
impossible
to
say
for
certain
where
they’ll
end
up,”
noted
Jacob
Channel,
senior
economist
at
LendingTree. “That
said,
there’s
a
good
chance
that
we’re
going
to
need
to
get
used
to
rates
above
7%
again,
at
least
until
we
start
getting
better
economic
news.”

Even
though auto
loans are
fixed,
payments
are
getting
bigger
because car
prices have
been
rising
along
with
the
interest
rates
on
new
loans,
resulting
in less
affordable monthly
payments. 

The
average
rate
on
a
five-year
new
car
loan
is
now
more
than
7%,
up
from
4%
in
March
2022,
according
to
Edmunds.
However,
competition
between
lenders
and
more
incentives
in
the
market
lately
have
started
to
take
some
of
the
edge
off
the
cost
of
buying
a
car,
said
Ivan
Drury,
Edmunds’
director
of
insights.

“Any
reduction
in
rates
will
be
especially
welcome
as
there
is
an
increasingly
higher
share
of
consumers
with
older
trade-ins
that
have
sat
out
the
market madness
waiting
for
an
automotive
landscape
that
looks
more
like
the
last
time
they
bought
a
vehicle
six
or
seven
years
ago,”
Drury
said.

Federal
student
loan
rates are
also
fixed,
so
most
borrowers
aren’t
immediately
affected. But
undergraduate
students
who
took
out
direct
federal
student
loans
for
the
2023-24
academic
year
are
now
paying
5.50%,
up
from
4.99%
in
2022-23
—
and
any
loans
disbursed
after
July
1
will
likely
be
even
higher.
Interest
rates
for
the
upcoming
school
year
will
be
based
on
an
auction
of
10-Year
Treasury
notes
later
this
month.

Private
student
loans
tend
to
have
a
variable
rate
tied
to
the
prime,
Treasury
bill
or
another
rate
index,
which
means
those
borrowers
are
already
paying
more
in
interest.
How
much
more,
however,
varies
with
the
benchmark.

For
those struggling with
existing
debt, there
are
ways
federal
borrowers
can
reduce
their
burden,
including income-based
plans
with
$0
monthly
payments and economic
hardship
and
unemployment
deferments. 

Private
loan
borrowers
have
fewer
options
for
relief
—
although
some
could
consider
refinancing
once
rates
start
to
come
down,
and
those
with
better
credit
may
already
qualify
for
a
lower
rate.

While
the
central
bank
has
no direct
influence on
deposit
rates,
the
yields
tend
to
be
correlated
to
changes
in
the
target
federal
funds
rate.

As
a
result,
top-yielding
online

savings
account
rates
have
made
significant
moves
and
are
now
paying
more
than
5.5%
—
above
the
rate
of
inflation,
which
is
a
rare
win
for
anyone
building
up
a
cash
cushion,
McBride
said.

“The
mantra
of
higher-for-longer
interest
rates
is
music
to
the
ears
of
savers
who
will
continue
to
enjoy
inflation-beating
returns
on
safe-haven
savings
accounts,
money
markets
and
CDs
for
the
foreseeable
future,”
he
said.

Currently,
top-yielding certificates
of
deposit
pay
over
5.5%, as
good
as
or
better
than
a
high-yield
savings
account.

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