Federal Reserve officials leave rates unchanged and forecast three cuts next year.


Federal Reserve policymakers will announce their latest interest rate decision on Wednesday, and while they are expected to keep rates steady, their assessment of the economy often moves markets, with implications for borrowers and savers.

The Federal Reserve last raised its benchmark rate, known as the federal funds rate, to a range of 5.25 to 5.5 percent. A series of rate hikes that began in March last year were aimed at curbing inflation, which has cooled but remains elevated, prompting Fed officials to suggest they will keep rates high for an extended period.

That means the cost of credit cards and mortgages may remain relatively high, making things difficult for people who want to pay off their debts, as well as those who want to take out new loans to renovate their kitchen or buy a new car. . In recent weeks, long-term market rates that influence many types of consumer and business loans they have gone downbut they are still higher than before the pandemic.

“For a while we were very spoiled with low rates, and that lulled us into a false sense of security in terms of what the true cost of debt may be,” said Anna N'Jie-Konte, president of Re-Envision Wealth. a wealth management company.

Here's how the Federal Reserve's decisions affect different rates and where they currently stand.

Credit cards

People who have credit card debt should focus on paying it off and assume that rates will continue to rise. Credit…Maansi Srivastava/The New York Times

Credit card rates are closely tied to the Federal Reserve's actions, meaning consumers with revolving debt have seen those rates rise over the past year, and quickly (increases typically occur within one or two cycles billing).

The average credit card rate was 20.72 percent as of Dec. 6, according to Bankrate.comup from about 16 percent in March of last year, when the Federal Reserve began its series of rate hikes.

People who have credit card debt should focus on paying it off and assume that rates will continue to rise. Zero percent balance transfer offers can help when used carefully (still exist for people with good credit, but with fees), or you could try to negotiate a lower rate with your card issuer, said Matt Schulz, chief credit analyst at LendingTree. His investigation found that this tactic often works.

Car Loans

Higher loan rates have been holding back auto sales, particularly in the used car market, because loans are more expensive and prices remain high, experts said. Qualifying for auto loans has also become more difficult than a year ago.

“The vehicle market faces affordability challenges,” said Jonathan Smoke, chief economist at Cox Automotive, a market research firm.

The average rate on new car loans in November was 7.4 percent, slightly higher than at the beginning of the year, according to Edmunds.com. Used car rates were even higher: The average loan had a rate of 11.6 percent in November, surpassing a high set earlier in the year.

Auto loans tend to follow the five-year Treasury note, which is influenced by the Federal Reserve's key 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 the rate calculation.


The 30-year fixed-rate mortgage generally follows the yield of the 10-year Treasury bond,Credit…Gabby Jones for The New York Times

The 30-year fixed-rate mortgage does not move in tandem with the Federal Reserve's reference rate, but rather generally follows the yield of 10-year Treasury bondswhich are influenced by a variety of factors, including expectations about inflation, the actions of the Federal Reserve and how investors react to it all.

Mortgage rates are at the highest levels in more than two decades. The average rate on a 30-year mortgage was 7.03 percent as of Dec. 7, according to Freddie Mac, compared with 6.33 percent for an identical loan the same week in 2022.

Other mortgage loans are more closely tied to the Federal Reserve's actions. Home equity lines of credit and adjustable rate mortgages (each of which has variable interest rates) generally increase within two billing cycles after a change in Federal Reserve rates. The average home equity loan rate was 8.92 percent as of Dec. 6, according to Bankrate.com.

Student loans

Borrowers who already have federal student loans are not affected by the Federal Reserve's actions because that debt carries a fixed interest rate set by the government. (Payments on most of these loans have been suspended for the past three years as part of a pandemic relief measure, and was born again in October.)

But prices for new batches of federal student loans are set each July, based on the auction of 10-year Treasury bonds held in May. and those loan rates have risen: Borrowers with federal student loans disbursed after July 1 (and before July 1, 2024) will pay 5.5 percent, up from 4.99 percent for loans disbursed in the period from the previous year. just three years agorates were below 3 percent.

Graduate students taking out federal loans will also pay about half a 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 those rates rise thanks to previous increases. Both fixed-rate and variable-rate loans are tied to benchmark indices that track the federal funds rate.

Saving Vehicles

Savers looking for a better return on their money have had it easier: Rates on online savings accounts, along with one-year certificates of deposit, have reached their highest levels in more than a decade. But the pace of those increases is slowing.

“Consumers now have several options to earn more than 5 percent returns on their cash,” said Ken Tumin, founder of DepositAccounts.com, part of LendingTree.

A higher Federal Reserve rate often means banks pay more interest on their deposits, although that doesn't always happen right away. They usually raise their rates when they want to make more money.

The average yield on an online savings account was 4.46 percent as of Dec. 1, according to AccountsDeposito.com, up from 3.02 percent a year ago. But the returns on money market funds offered by brokerage firms are even more attractive because they have more closely tracked the federal funds rate. The performance on Crane 100 Money Fund Indexwhich tracks the largest money market funds, was 5.19 percent on Tuesday.

Rates on certificates of deposit, which tend to replicate Treasury securities with similar dates, have also been rising. The average one-year CD at online banks was 5.32 percent as of Dec. 1, up from 4.15 percent a year earlier, according to AccountsDeposito.com.

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