What the Federal Reserve’s next move means for the rates you pay

The Federal Reserve announced Wednesday it will leave interest rates unchanged, setting the stage for rate cuts to come and paving the way for relief from the combination of higher rates and inflation that have hit consumers particularly hard. 

Although Fed officials indicated as many as three cuts coming this year, the pace that they trim interest rates is going to be much slower than the pace at which they hiked, according to Greg McBride, chief financial analyst at Bankrate.

“Interest rates took the elevator going up; they are going to take the stairs coming down,” he said.

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Inflation has been a persistent problem since the Covid-19 pandemic, when price increases soared to their highest levels since the early 1980s. The Fed responded with a series of interest rate hikes that took its benchmark rate to its highest in more than 22 years.

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.

The spike in interest rates caused most consumer borrowing costs to skyrocket, putting many households under pressure.

“Below the surface, 60% of households are living paycheck to paycheck,” McBride said. Even as inflation eases, high prices continue to to strain budgets and credit card debt continues to rise, he added.

Now, with rate cuts on the horizon, consumers will see some of their borrowing costs come down as well, although deposit rates will also follow suit.

From credit cards and mortgage rates to auto loans and savings accounts, here’s a look at where those rates could go in the year ahead.

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark and because of the central bank’s rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to nearly 21% today — an all-time high.

Going forward, annual percentage rates will start to come down when the Fed cuts rates but even then, they will only ease off extremely high levels. With only a few potential quarter-point cuts on deck, APRs would still be around 20% by the end 2024, McBride noted.

“The credit card rates are going to mimic what the Fed does,” he said, “and those interest rate decreases are going to be modest.”

Thanks to higher mortgage rates, 2023 was the least affordable homebuying year in at least 11 years, according to a report from real estate company Redfin.

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…