What it means for your money today.

The Fed announced Wednesday that it would keep interest rates on hold as inflation continues to prove stronger than expected.

But the move also dashes hopes that the Fed will soon begin cutting rates and freeing consumers from soaring borrowing costs.

The market is currently pricing in one rate cut this year, according to CME’s FedWatch futures market price metric. Greg McBride, chief financial analyst at Bankrate.com, said he started 2024 expecting at least six cuts, which was “absolute dreamland.”

He said this change in expectations for interest rate cuts would put many households in a bind. “Certainly from a budget perspective, not only is inflation still high, but it’s on top of cumulative price increases over the past three years.”

“With interest rates expected to remain high for some time, prioritizing debt repayments, especially high-value credit card debt, remains paramount,” McBride said.

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Inflation has become a persistent problem since the coronavirus pandemic, with price increases reaching their highest levels since the early 1980s. The Federal Reserve responded with a series of rate hikes, pushing the benchmark interest rate to its highest level in more than 22 years.

The federal funds rate, set by the U.S. central bank, is the interest rate at which banks lend and borrow from each other overnight. Although this is not the interest rate consumers pay, the Fed’s actions still affect the borrowing and savings rates that consumers see every day.

Rising interest rates are increasing borrowing costs for most consumers and putting pressure on many household budgets.

Rising inflation is also bad news for wage growth, with real average hourly wages increasing by just 0.6% over the past year, according to the Department of Labor’s Bureau of Labor Statistics.

Brett House, a professor of economics at Columbia Business School, said even with a potential rate cut on the horizon, consumers won’t see much lower borrowing costs.

“If the Fed cuts rates, it could spread to other rate cuts, but there’s no guarantee that will happen,” he said.

From credit card and mortgage rates to car loans and savings accounts, take a look at what those rates will look like in the second half of 2024.

Most credit cards have variable interest rates, so they are directly tied to the Fed’s benchmark. As a result of the rate hike cycle, average interest rates on credit cards have increased from 16.34% in March 2022 to nearly 21% today, a record high.

When a central bank lowers interest rates, the annual rate starts to fall, but it only eases the extremely high level. Matt Schultz, chief credit analyst at LendingTree, said annual interest rates are unlikely to fall significantly because there are only a few chances of quarter-point cuts.

“If Americans want interest rates to go down, they’re going to have to do it themselves,” he said. Schultz advises calling your card issuer to get a lower interest rate, consolidating high-interest credit cards into a lower-interest personal loan, or switching to an interest-free balance transfer credit card. do.

Although 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, new home buyers have lost significant purchasing power due to inflation and Fed policy moves. ing.

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

“Mortgage rates are likely to continue to fluctuate, and it’s impossible to say with certainty where they will ultimately settle,” said Jacob Channell, senior economist at LendingTree. “That said, we will likely have to get used to interest rates above 7% again, at least until we start hearing better economic news.”

Even if your car loan is a fixed amount, the interest rates on new loans, as well as rising car prices, make your payments higher, making your monthly payments less affordable.

The average interest rate on a five-year new car loan is now more than 7%, up from 4% in March 2022, Edmunds said. But Ivan Drury, director of insights at Edmunds, said the cost of buying a car has started to come down some in recent years due to competition among lenders and increased incentives in the market.

“The lower rates are particularly welcome as an increasing proportion of consumers are trading in their old cars to avoid the market frenzy, longing for a car environment like the one they had when they bought their cars six or seven years ago. ‘before,’ Drury said.

Federal student loan interest rates are also fixed, so most borrowers won’t be affected immediately. However, college students who took out direct federal student loans in the 2023-24 academic year are now paying 5.50%, up from 4.99% in the 2022-23 academic year, and loans disbursed after July 1 are paying even more. There is a high possibility that it will. Next year’s interest rate will be decided based on the auction of 10-year government bonds to be held later this month.

Private student loans tend to have variable interest rates tied to prime interest rates, Treasury bills, or other interest rate indexes, meaning the borrower is already paying more in interest. However, how much more depends on the benchmark.

For those struggling with existing debt, there are ways federal borrowers can ease the burden, including zero monthly payments and income-based plans with financial hardship and unemployment deferrals. included.

Relief options are limited for private loan borrowers, but some may consider refinancing if interest rates start to fall, and those with good credit may already qualify for lower rates.

Central banks do not directly influence deposit rates, but yields tend to correlate with changes in the target federal funds rate.

As a result, interest rates on the highest-yielding online savings accounts have fluctuated widely, and currently pay more than 5.5% above the rate of inflation, a rare victory for those building cash cushions. said McBride.

“The mantra of long-term interest rates is music to the ears of savers who will continue to enjoy above-inflation returns in safe savings accounts, money markets, and CDs for the foreseeable future,” he said.

Currently, the highest-yield certificates of deposit have yields of 5.5% or higher, which are comparable to or better than high-yield savings accounts.

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