The Fed holds interest rates steady. What that means for your money

The Federal Reserve announced Wednesday it will leave interest rates unchanged, delaying the possibility of rate cuts as well as any relief from sky-high borrowing costs.

Overall, expectations that the Fed is pulling off a soft landing have increased, but that offers little consolation for Americans with high-interest debt.

And now there may be fewer interest rate cuts on the horizon after hotter-than-expected inflation reports sent the message that “we are moving in the right direction, but we’re not there yet,” said Greg McBride, chief financial analyst at Bankrate.com.

For consumers, that means “a very slow downward drift in savings rates but no material change in borrowing costs for credit cards, auto loans or home equity lines of credit,” McBride 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.

Even with some rate cuts on the horizon later this year, consumers won’t see their borrowing costs come down significantly, according to Columbia Business School economics professor Brett House.

“The costs of borrowing will remain relatively tight in real terms as inflation pressures continue to ease gradually,” he said.

From credit cards and mortgage rates to auto loans and savings accounts, here’s a look at where those rates could go in 2024.

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. 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.

With most people feeling strained by higher prices, balances are higher and more cardholders are carrying debt from month to month compared with last year.

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 of 2024, according to Ted Rossman, Bankrate’s senior industry analyst.

“If the average credit card rate falls a percentage point from its current record-high of 20.75%, most cardholders would barely notice,” he said.

Although 15- and 30-year mortgage rates are fixed, and tied to Treasury yields…