Federal Reserve Holds Rates Steady, But Borrowers and Savers Feel the Pinch
The Federal Reserve announced today that it will maintain its benchmark interest rate at its current level, a decision that continues to impact various aspects of the U.S. economy. While the Fed’s move offers a degree of stability, the lingering effects of elevated interest rates are being felt by consumers across the board, from housing to credit cards and auto loans.Housing Affordability Remains a challenge
Despite the Federal Reserve’s decision, housing affordability continues to be a critically important concern for many Americans. High home prices, which reached a record high in June, coupled with elevated mortgage rates, are creating a challenging surroundings for prospective buyers. Eugenio Aleman, chief economist at Raymond James, noted that the housing market “continues to struggle under high home prices as well as high mortgage rates.”
Credit Card Rates Stay Elevated
For consumers relying on credit cards, the Federal Reserve’s benchmark rate has a direct impact due to the variable nature of most credit card APRs. Currently, the average annual percentage rate (APR) for credit cards hovers just above 20%, according to Bankrate, a level not far from last year’s all-time record. Greg McBride, chief financial analyst at Bankrate, described credit card rates as being “in a holding pattern at a very elevated level.” Experts suggest that even a reduction of 3 percentage points in APRs would not substantially alleviate the burden for those carrying revolving balances.
Auto Loan Payments Continue to Rise
Auto loan rates are fixed for the duration of the loan, meaning that existing loan payments remain unchanged. However, new car buyers are facing increasingly larger payments due to rising car prices. This pressure is further exacerbated by potential tariffs on foreign-made vehicles and parts. The average rate for a five-year new car loan currently stands at 7.22%, according to bankrate. Ivan Drury, Edmunds’ director of insights, observed that “Consumers are continuously stretching to afford new vehicles in this market.” Consequently, the proportion of new-car buyers committing to monthly payments exceeding $1,000 has reached an all-time high.
Savings Accounts Offer a Silver Lining
On a more positive note for savers, top-yielding online savings accounts continue to offer competitive returns, with rates currently exceeding 4%, as reported by Bankrate. While the Federal Reserve does not directly influence deposit rates, these yields are generally correlated with changes in the federal funds rate. The decision to hold the rate steady has, in turn, kept savings rates above the rate of inflation, a scenario McBride described as a “rare win.” He advises consumers to “lean into” the current environment, stating, “It’s not a good time to be a borrower, but it’s a great time to be a saver.”
