News
The Federal Reserve may pause its interest rate hiking campaign. What that means for you

Published
4 months agoon
By
New Yorker
damircudic | E+ | Getty Images
The Federal Reserve is likely to temporarily pause its aggressive interest rate hikes when it meets next week, experts predict. But consumers may not see any relief.
The central bank has raised interest rates 10 times since last year — the fastest pace of tightening since the early 1980s — only to see inflation stay well above its 2% target.
“We are living in uncharted territory,” said Charlie Wise, senior vice president and head of global research and consulting at TransUnion. “The combination of rising interest rates and elevated inflation, while not uncommon from a historical perspective, is an unfamiliar experience for many consumers.”
“A pause is not going to make things better,” he added.
More from Personal Finance:
Even as inflation rate subsides, prices may stay higher
Here’s the inflation breakdown for April 2023, in one chart
Who does inflation hit hardest? Experts weigh in
Although the Fed’s rate-hiking cycle has started to cool inflation, higher prices have caused real wages to decline. That’s squeezed household budgets, pushing more people into debt just when borrowing rates reach record highs.
Even with a pause, “interest rates are the highest they’ve been in years, borrowing costs have gone up dramatically and that isn’t going to change,” said Greg McBride, chief financial analyst at Bankrate.com.
Here’s a breakdown of how the benchmark rate has already impacted the rates consumers pay:
Credit card rates top 20%
The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.
For starters, most credit cards come with a variable rate, which has a direct connection to the Fed’s benchmark rate.
After the previous rate hikes, the average credit card rate is now more than 20% — an all-time high, while balances are higher and nearly half of credit card holders carry the debt from month to month, according to a Bankrate report.
Mortgage rates are near 7%
Although 15-year and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.
The average rate for a 30-year, fixed-rate mortgage currently sits at 6.9%, according to Bankrate, up from 5.27% one year ago and only slightly below October’s high of 7.12%.
Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate. As the federal funds rate rose, the prime rate did, as well, and these rates followed suit.
Now, the average rate for a HELOC is up to 8.3%, the highest in 22 years, according to Bankrate. “While typically thought of as a low-cost way to borrow, it no longer is,” McBride said.
Auto loan rates are close to 7%
Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans.
The average rate on a five-year new car loan is now 6.87%, the highest since 2010, according to Bankrate.
Keeping up with the higher cost has become a challenge, research shows, with more borrowers falling behind on their monthly loan payments.
Federal student loans are set to rise to 5.5%
Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But as of July, undergraduate students who take out new direct federal student loans will see interest rates rise to 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.
For now, anyone with existing federal education debt will benefit from rates at 0% until the payment pause ends, which the U.S. Department of Education expects could happen in the fall.
Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that those borrowers are already paying more in interest. How much more, however, varies with the benchmark.
Deposit rates at some banks are up to 5%
While the Fed has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.4%, on average.
Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are now over 5%, the highest since 2008’s financial crisis, according to Bankrate.
However, if the Fed skips a rate hike at its June meeting, then those deposit rate increases are likely to slow, according to Ken Tumin, founder of DepositAccounts.com.
Source: CNBC

UAE condemns deadly terrorist bombings in Pakistan

D.C. couples rush for marriage licenses as government shutdown looms

Tupac murder suspect arrested and named as Duane Davis – live updates

'It's disturbing': Man, 81, killed in Hernando, suspect taken into custody

Letterboxd Owners Sell Out for $50 Million

Some N.H. residents are balking at an ordinance requiring them to cut their lawns

28 Prime Day Kitchen Deals You Can Shop Ahead of Big Deal Days

Why Selena Gomez Avoids Her Bedroom During a Bad Mental Health Day

Dry Brushing Your Skin Has Legit Benefits, According to Experts

Travis Kelce Officially Addresses Taylor Swift Romance Rumors

Jamie Lee Curtis and Lindsay Lohan Had ‘Aggressive Energy’ With Each Other in ‘Freaky Friday’

Dad who won an appeal in college admissions bribery case gets 6 months home confinement for tax offense

Hugh Jackman and Kate Winslet Helped Lure A-List Actors Into a Bad Film They Tried Getting out Of

Risk Management | Definition, Importance, Tools, Best Practices

Watch: Trevor Story snaps the Red Sox’ 23-inning scoreless streak with two-run home run
Trending
-
Tech23 hours ago
H&R Block, Meta, and Google Slapped With RICO Suit, Allegedly Schemed to Scrape Taxpayer Data
-
News20 hours ago
Netanyahu warns of potential ‘eruption of AI-driven wars’ that could lead to ‘unimaginable’ consequences
-
News21 hours ago
TSMC to help Europe break its Asia chip dependency
-
News22 hours ago
Boeing CEO says travel demand recovery is ‘more resilient’ than he imagined
-
Lifestyle22 hours ago
‘The Golden Bachelor’ Star Gerry Turner Surprises Retirement Home Residents for Premiere Screening (EXCLUSIVE)
-
Lifestyle20 hours ago
Brittany Snow Is on a ‘Healing Journey’ After Tyler Stanaland Divorce
-
Finance20 hours ago
PayPal Deepens Crypto Footing With Layer-2 Solutions and NFT Patent Applications
-
News21 hours ago
Sixth Circuit ban trans youth health care in Kentucky and Tennessee