Following a stronger than expected employment report and rising inflation measurements, the Federal Reserve is expected to stabilize interest rates at the end of this week’s two-day meeting, despite pressure from President Donald Trump.
“Consumers have been waiting for years to see prices fall. There’s no inflation, Trump said in a True Social Post Friday.
As an independent institution, the central bank has always been run autonomously from the White House. Federal Reserve Chairman Jerome Powell has repeatedly said that monetary policy decisions are completely separate from politics. At the same time, the President’s new trade policy is a barrier to reductions, as he expects new tariffs could lead to widespread rises in prices that complicate inflation forecasts.
Certainly, many Americans are under pressure with high prices and high borrowing costs, but potential inflation is affected by the impacts of costly trade wars.
“Consumers are always paying the price,” said Eugenio Aleman, chief economist at Raymond James.
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Federal fund rates set out what banks charge each other for lending overnight, but also affect many of the borrowing and savings rates that consumers see every day.
“Rules of uncertainty in the ever-changing landscape of trade wars and tariffs,” said Greg McBride, Bankrate’s chief financial analyst. “But as hard data on consumer spending and employment still hangs there, the Fed will remain firmly planted on the bystanders.”
The market now widely anticipates that the Fed will wait until July to cut, allowing for a further two or three cuts by the end of the year.
A lower federal funding rate can reduce borrowing costs with a variety of consumer debt, including car loans, credit cards, and mortgage fees, making it easy to access cheap money.
Here’s a breakdown of how it works.
Credit Card
Most credit cards have variable rates, so they are directly connected to the Fed’s benchmarks.
In most cases, the average annual rate is just over 20% this year, according to the bank rate, not far from last year’s record high.
Holding the Fed is not the only one that keeps your credit card fees high. “Banks are nervous about all of the uncertainties in the economy and what it means to consumers,” said Matt Schultz, chief credit analyst at LendingTree.
“When that happens, banks try to minimize the risk as much as possible. One way they do it is to raise interest rates on their credit cards,” he said.
Credit card debt continues to be a problem for consumers who are struggling to keep up with high prices. Total credit card debt and average balances are also record highs.
Home loan
According to the Mortgage Bankers Association, mortgage rates for 15 and 30 years are largely related to Treasury yields and the economy, but concerns over economic policies and Trump’s tariff plans have resulted in lowering interest rates.
According to the bank rate, the average rate for fixed-rate mortgages for 30 years was 6.81%, down from 7.04% at the beginning of the year. But for potential home buyers, it’s not enough to give the housing market a boost.
“Unfortunately, for people who buy a home this summer, the rates are likely to remain within or around that range in the near future,” Schultz said.
Automatic loan
While car loan rates have barely changed, car payments have risen due to rising prices, while the 25% tariff on Trump’s imported vehicles is putting more pressure on them.
Currently, according to Bankrate, the average five-year new car loan rate is 7.33%, down from 7.53% in January.
Student loan
Federal student loan fees are fixed for the life of the loan, so most borrowers have some protection from the Fed’s movements and recent economic disruptions.
Interest rates for the next academic year are based in part on the 2010 Treasury’s May auction and are unlikely to change much. Undergraduates who earned direct federal student loans between 2024 and 25 will pay 5.50% to 6.53% in 2023 and 24.
Borrowers with existing federal student debt balances do not see their fees change, but many now face other headwinds and federal loan exemption options.
Save money
Conversely, according to Bank Rates, the best online savings accounts still offer above average returns, currently paying 4.5%. Central banks do not have a direct impact on deposit rates, but yields tend to correlate with changes in target federal funding rates, so keeping that tax rate has increased for now.
“For consumers, the best way to protect their finances in times of uncertainty is to double down by promoting emergency savings and eliminating high-interest debt,” says McBride of Bankrates. “This will build a buffer in the event of income disruption or unexpected expenses, sequestering you from expensive borrowing.”
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