What it means for your money

The Federal Reserve held interest rates steady Wednesday, concluding the first meeting helmed by new Fed Chairman Kevin Warsh. The decision offered little relief for consumers struggling to keep up with higher gas prices and overall affordability challenges.

Although Donald Trump‘s pick to lead the central bank had previously indicated he may be in favor of lower rates, inflation rose at its fastest pace in three years last month and the jump in energy costs could have longer-term inflationary effects, economists say. That likely contributed to the decision to leave rates unchanged, experts say, and may prompt the central bank to consider raising borrowing costs instead — contrary to what Trump wants.

“The Fed can no longer claim there is a balance of risks; inflation is the problem,” said certified financial planner Stephen Kates, a financial analyst at Bankrate.

Persistently elevated rates — and the prospect of higher borrowing costs — could come as another financial blow for households at a time when cost pressures are mounting.

“It makes buying a house more difficult, revolving credit is now more difficult, owning a car is now more expensive,” said Wayne Winegarden, an economist at Pacific Research Institute, a conservative think tank. Although some of these products’ rates are fixed and not immediately impacted by Fed moves, “if you are locking in at a higher rate, it’s just another way we are making life unaffordable for American families,” Winegarden said.

The Federal Reserve’s benchmark, called the Fed funds rate, sets what banks charge each other for overnight lending, but also has a ripple effect on many consumer borrowing and savings rates.

When the Fed raises its benchmark rate, borrowing becomes more expensive for consumers and businesses, which can cool the economy and, in turn, inflation — but the impact of the Fed’s actions varies significantly across loan types.

Generally, short-term rates, such as credit card rates, are closely tied to the Fed’s benchmark. Longer-term rates, such as mortgage rates, are more influenced by Treasury yields and the economy. 

For example, most credit cards have a variable rate, so there’s a direct connection to the Fed’s overnight rate.

“Credit card APRs don’t tend to change much unless the Fed forces them to, and with no Fed rate cuts likely on the horizon, Americans should expect card APRs to remain high for the foreseeable future,” said Matt Schulz, chief credit analyst at LendingTree. 

The average annual percentage rate for credit cards has held at just under 20% since last year, according to Bankrate.

Savings rates also tend to be correlated with changes in the target federal funds rate. Although holding the Fed’s rate unchanged has kept savings yields largely steady, some have started to drift lower. Still, top-yielding online savings accounts can offer above-average returns and currently pay more than 4%, according to Bankrate.

“If you’re seeking a silver lining in these higher rates, look no further than high-yield savings accounts,” Schulz said.

By contrast, 15- and 30-year fixed mortgage rates don’t directly track the Fed but typically follow the lead of long-term Treasury rates and the economy. As a result, mortgage rates continue to be volatile amid lingering uncertainty over tensions in the Middle East.

The average rate for a 30-year, fixed-rate mortgage was 6.54% as of June 16, while the 15-year, fixed-rate was 6.11%, according to Mortgage News Daily.

Auto loan rates are fixed for the life of the loan, and market rates are tied to several factors, including the Fed’s benchmark. But because financing costs remain elevated, new car buyers are getting squeezed by more expensive vehicles and higher interest rates, a combination that can force them to choose between higher monthly payments and longer repayment terms.

“Until the rate picture shifts, buyers will keep stretching loan terms to make payments affordable, accruing more interest through the life of their terms as an unfortunate byproduct,” said Joseph Yoon, consumer insights analyst at Edmunds.

With the Fed’s benchmark holding steady, the average rate on a five-year new car loan is 6.9%, while the average auto loan rate for used cars is 10.4%, according to Edmunds.