When the Fed hiked interest rates in 2022 and 2023, interest rates on most consumer loans quickly followed suit. The central bank reduced its benchmark rate three times in 2024, but these consumer rates are still rising and are staying mostly high for now.
Five ways that the Fed can affect your wallet
1. Credit Card
Many credit cards come with a variety of rates, which means they are directly connected to the Fed’s benchmarks.
The average annual credit card rate was just over 20%, according to the bank rate, as interest rate cuts are likely to be postponed until July. It’s not far from the greatest ever in 2024. Last year, banks raised credit card rates to record levels, with some issuers saying they are maintaining these higher rates.
At the same time, “the higher the prices make more people in debt,” said Ted Rothman, senior industry analyst at Bankrate. Total credit card debt and average balances are also record highs.
2. Home loan
Future home buyers are for sale at their open houses near Clarksburg, Maryland.
Robert Schmidt | AFP | Getty Images
Mortgage rates do not track the Fed directly, but are largely linked to the Treasury yields and the economy. As a result, uncertainty about tariffs and concerns over the possibility of a recession has reduced those fees slightly.
According to Mortgage News Daily, the average rate for a 30-year fixed-rate mortgage is 6.91% as of May 6th, while the fixed-rate rate for 2015 is 6.22%.
“We are committed to providing a range of services that are important to us,” said Michele Raneri, Vice President of Transunion and Vice President of Research and Consulting in the US.
But for potential home buyers, it’s not enough to give the housing market a boost. “Many borrowers are reluctant to take a loan at today’s fees, especially if they currently have a loan at a significantly lower rate,” Laneli said.
3. Car loan
Auto loan fees are linked to several factors, but the Fed is one of the most important.
According to Edmunds, the average rate for new car loans over the past five years was 7.1%, while the average rate for used cars was 10.9%, as the Fed’s benchmark remains stable. At the end of 2024, these prices were 6.6% and 10.8% respectively.
Interest rates have been facing a bigger monthly payment and affordable crunch, along with pressure from Trump’s 25% tariffs on imported vehicles, according to Joseph Yun, a consumer insight analyst at Edmunds.
“Consumers continue to face challenging markets and now there is an added uncertainty about the impact of tariffs on the purchase of their next vehicle,” Yun said. “Prices and interest rates continue to rise, and there is no quick or simple answer as buyers try to understand the increasingly complex shopping journeys, as there is no quick or simple answer as to how tariffs affect stock levels and therefore pricing.”
4. 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 upcoming academic year are expected to fall slightly, partly based on the 2010 Treasury May auction, according to Mark Kantrowitz. 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 will not change their fees. In addition to other headwinds, there are fewer federal loan waiver options.
5. Save money
While central banks do not directly affect deposit rates, yields tend to correlate with changes in eligible federal funding rates.
“Continuous high interest rates are clear for those in debt, but great for savers,” said Matt Schulz, chief credit analyst at LendingTree.
The yields on CDs and high-yield savings accounts may not be as high as a year ago, but the Fed’s suspension of interest rate cuts has far surpassed annual inflation, Schulz said. According to Bankrate, Top Yield Online Savings Accounts currently pay an average of 4.5%.
“With all the uncertainties in the economy right now, it makes sense to act now to lock the CD rate and take advantage of the returns of current high-yield savings accounts,” Schultz said.
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