The Federal Reserve held steady on interest rates Wednesday, leaving benchmarks unchanged at the conclusion of its first policy meeting of the year. This decision comes as Americans grapple with persistently high borrowing costs, despite a recent dip in mortgage rates.
Facing mounting political pressure from President Donald Trump, a cooling labor market, ongoing inflation concerns, and global uncertainties, “ther is no shortage of confusing narratives,” noted Stephen Kates, a financial analyst at Bankrate. “That puts the Fed in a challenging position.”
What does the Fed’s decision mean for your money? The central bank’s moves ripple through the economy, impacting everything from credit card rates to home loans and savings accounts.
The federal funds rate-set by the U.S.central bank-is the rate at which banks lend to each othre overnight. While consumers don’t directly pay this rate, the Fed’s actions influence the rates they encounter daily. However, not all borrowing costs are tied directly to the Fed’s benchmark.
Short-term rates, like those on credit cards, generally track the prime rate-typically 3 percentage points above the federal funds rate. Longer-term rates, such as mortgages, are more sensitive to inflation and broader economic conditions.
Mortgages
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Affordability challenges continue to plague the housing market, driven by a combination of high prices and elevated borrowing costs, according to Hannah Jones, senior economic research analyst at Realtor.com.
Fixed mortgage rates don’t directly follow the Fed’s moves but tend to mirror long-term Treasury rates.unless mortgage rates, incomes, or home prices shift significantly, “affordability is highly likely to remain historically strained, reinforcing the lock-in effect for existing homeowners and keeping entry barriers high for first-time buyers,” Jones stated.
Auto Loans
Rates on new car loans have edged lower, buyers are borrowing larger amounts-the average amount financed for a new car recently reached an all-time high, according to Edmunds.The percentage of car owners “underwater” on their auto loans (owing more then the car is worth) is also at a five-year high, Edmunds found.
“The fed’s decision to keep rates steady through march will not noticeably impact consumers on its own, but it will certainly dampen the confidence of shoppers looking to take advantage of better rates in the new year,” said Joseph Yoon, consumer insights analyst at Edmunds.
Trump’s tariffs on imported vehicles and parts aren’t helping to lower costs either, other experts have noted.
Student Loans
Savings
On a positive note, top-yielding online savings accounts continue to offer competitive returns.
While the central bank doesn’t directly influence deposit rates,yields tend to correlate with changes in the target federal funds rate. Holding the rate steady could keep savings rates above the rate of inflation-a rare win for savers.
“four years ago,rates were basically zero; now,you can get 3% to 3.5%,” said Bankrate’s Kates, adding that this is still “a decent return.”
However, the personal savings rate recently fell to 3.5%, the lowest level since October 2022, largely due to consumers struggling to keep pace with the rising cost of living.
