The Federal Reserve may skip rate hike this week. What that means for

On Sep 18, 2023

Artistgndphotography | E+ | Getty Images

The Federal Reserve is likely to skip an interest rate hike when it meets this week, experts predict. But consumers may not feel any relief.

The central bank has already raised interest rates 11 times since last year — the fastest pace of tightening since the early 1980s.

Yet recent data is still painting a mixed picture of where the economy stands. Overall growth is holding steady as consumers continue to spend, but the labor market is beginning to loosen from historically tight conditions.

At the same time, inflation has shown some signs of cooling even though it remains well above the central bank’s 2% target.

Even with a break in rate hikes, “the one thing that remains very clear is that the Fed is nowhere close to cutting rates,” said Greg McBride, chief financial analyst at Bankrate.com. “Rates remain really high and will stay there for a while.”

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.

Here’s a breakdown of how the impact has already been felt:

Credit card rates top 20%

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 an earlier Bankrate report.

Mortgage rates are above 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 rates for a 30-year, fixed-rate mortgage “remain anchored north of 7%,” said Sam Khater, Freddie Mac’s chief economist. “The reacceleration of inflation and strength in the economy is keeping mortgage rates elevated.”

Fed may pause interest rate hikes, but likely to keep rates 'pretty elevated,' analyst says

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 9.12%, the highest in 22 years, according to Bankrate. “That HELOC is no longer low-cost debt and it warrants a much higher focus on repayment than it has for a long time,” McBride said.

Auto loan rates top 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 7.46%, the highest in 15 years, according to Bankrate.

Experts say consumers with…