Fed keeps interest rates stable: Watch Powell speak live at the Fed meeting

Federal Reserve officials have kept interest rates unchanged since July as they continue to monitor the economy. With inflation still fairly stubborn — prices have risen 3.2 percent for five months now — policymakers are unlikely to focus on interest rate cuts too quickly.

However, many banks have already begun to anticipate potential cuts by reducing the rates they pay to consumers, including some certificates of deposit.

Here's how different interest rates are affected by the Fed's decisions — and where they stand.

credit cards

Credit card rates are closely linked to central bank actions, meaning consumers with revolving debt have seen interest rates rise rapidly over the past two years. Increases typically occur within one or two billing cycles, but don't expect them to decrease as quickly.

“The urgency to pay off high-cost credit cards or other debt has not diminished,” said Greg McBride, chief financial analyst at Bankrate.com. “Interest rates took the elevator up, but they will take the stairs down.”

This means consumers should prioritize paying off higher-cost debt and take advantage of low-interest, zero-interest balance transfer offers when they can.

The average interest rate on credit cards with interest rates was 22.75% at the end of 2023, according to the Federal Reserve, compared with 20.40% in 2022 and 16.17% at the end of March 2022, when the Fed began its series of interest rate increases.

Car loans

Interest rates on auto loans remain high, which, combined with rising car prices, continues to put pressure on affordability. But that did not stop buyers, many of whom returned to the market after postponing purchases for several years due to inventories that were constrained during the Covid-19 pandemic and later due to the Russian invasion of Ukraine.

The market will likely return to normal this year: New car inventory is expected to increase, which could help cushion prices and lead to better deals.

“The Fed’s hints that they have met their rate hike goals could be a sign that rates may be cut sometime in 2024,” said Joseph Yun, a consumer insights analyst at Edmunds Automotive Research. “Inventory improvements for manufacturers will mean shoppers will have more choices, and merchants will have to earn their customers' business, perhaps with stronger discounts and incentives.”

The average interest rate on new car loans was 7.1 percent in February Edmundsup slightly from 7 percent in the previous month and February 2023. Used car prices were even higher: The average loan carried a rate of 11.9 percent in February 2024, up from 11.3 percent in the same month in 2023.

Car loans tend to track with the yield on five-year Treasury bonds, which is affected by the Federal Reserve's key interest rate — but that's not the only factor that determines how much you'll pay. The borrower's credit history, vehicle type, loan term, and down payment are included in this rate calculation.

Mortgages

Mortgage rates have been volatile in 2023, with the average interest rate on 30-year fixed-rate loans rising to 7.79% in late October before falling by about a point and stabilizing: 30-year 6.74% as of March 14. According to Freddie Mac, compared to 6.6 percent in the same week last year.

“Mortgage rates remain high as the market faces inflation pressures,” Sam Khater, chief economist at Freddie Mac, said in a statement last week. “In this environment, there is a good possibility that interest rates will remain higher for a longer period of time.”

Interest rates on 30-year fixed-rate mortgages do not move in tandem with the Fed's index, but instead generally track the yield on 10-year Treasury securities, which is affected by a variety of factors, including expectations about inflation. , and Federal Reserve forecasts. Actions and how investors react.

Other housing loans are more closely linked to central bank decisions. Home equity lines of credit and adjustable-rate mortgages — each of which carry variable interest rates — generally rise within two billing cycles after the Fed rates change. The average home equity loan interest rate was 8.66% as of March 13. According to Bankrate.comWhile the home equity line of credit averaged 8.98 percent.

Student loans

Borrowers with federal student loans are not affected by the Fed's actions because such debt carries financial burdens Fixed exchange rate established by the government.

But batches of new federal student loans each July are priced based on the 10-year Treasury bond auction in May. And that Interest rates on loans rose: Borrowers with federal college loans disbursed after July 1, 2023 (and before July 1, 2024) will pay 5.5 percent, up from 4.99 percent for loans disbursed in the same period a year earlier. Just three years ago, rates were less than 3 percent.

Graduate students who take out federal loans will also pay about a half point more than the previous year's rate, or about 7.05 percent on average, as will parents, at 8.05 percent on average.

Private student loan borrowers have already seen interest rates rise due to previous rate increases: Both fixed- and variable-rate loans are tied to benchmarks that follow the federal funds rate.

Savings vehicles

Although the Federal Reserve's benchmark interest rate has remained unchanged, many online banks have begun reducing the rates they pay consumers.

In fact, now that interest rates have likely peaked and could eventually decline, many online banks have already cut interest rates several times this year on certificates of deposit, which tend to track similarly dated Treasury bills. For example, online banks, including Ally, Discover, and Synchrony, have cut interest rates on their 12-month CDs to less than 5 percent. Marcus is now paying 5.05 per cent, down from 5.50 per cent, while Barclays cut the interest rate to 5 per cent from 5.3 per cent.

“Deposit rates are already falling, and as we get closer to the first rate cut, they will fall even further,” said Ken Tomin, founder of DepositAccounts.com, part of LendingTree.

The average value of one-year certificates of deposit at online banks was 5.02 percent as of March 1, down from a peak yield of 5.35 percent in January, but up from 4.56 percent a year earlier, according to DepositAccounts.com. .

The average yield on an online savings account was 4.44 percent as of March 1, down only slightly from the peak of 4.49 percent in January, according to DepositAccounts.com, and up from 3.52 percent a year ago. But the returns on money market funds offered by brokerage firms are more attractive because they track the federal funds rate more closely. Return on Crane 100 Index Money Fundwhich tracks the largest money market funds, was at 5.14 percent on March 19.