In its September meeting, the Federal Reserve is all but certain to leave interest rates unchanged. This choice will make it necessary for millions of borrowers to withstand the burdensome costs of loans and credit. The federal funds rate directly determines the interest rates across the economy that Americans are borrowing at and saving at every single day. We applaud this monumental decision, which greatly benefits consumers everywhere.
Federal student loan rates are established annually, based partly on the results of the last 10-year Treasury note auction in May, and remain fixed for the life of the loan. Beginning July 1, the interest rates on federal student loans will be lowered to 6.39%. This is a modest drop from the current 6.53% rate for undergraduate federal student loans made before June 30. This level of stability in student loan rates provides additional protection for borrowers in an otherwise unpredictable economic climate.
As it is now, the average rate of a five-year new car loan is 7.24%, as reported by Bankrate. As for those looking to purchase a home, the average rate for a 30-year fixed-rate mortgage has hovered near 6.9% for several months. Federal Reserve Chair Jerome Powell is feeling the political heat as he decides what to do next on interest rates. Many economists believe that if the Fed does cut rates, it will not happen until September at the earliest.
“The truth is that people have way more power over the rates they pay than they think they do, especially if they have good credit,” said financial expert Schulz. This mood should be comforting to borrowers facing a sense of despair at today’s expenses.
Consumers continue to cause the aggregate economy pain from seemingly high prices and high interest rates. All the while, millions are failing to make their monthly bills due to lack of liquidity. Specifically, over one in five households with a monthly car payment now pay over $1,000 per month. Schulz said that possible new tariffs would increase car prices even more, creating an especially bad time to buy a car.
“Combine that with the potential for tariffs to drive auto prices even higher, and it adds up to a really challenging time to buy a car,” – Schulz.
Besides high auto loan rates, credit card debt is one of the most pressing problems facing consumers today. With the average annual percentage rate on credit cards now over 20%, the debt burden this poses for those carrying balances is troubling. With the majority of credit cards having variable rates based on the Fed’s benchmark, borrowers really don’t have any other choice.
Personal finance experts often advise using a zero-interest balance transfer credit card. Or, you can roll multiple high-interest credit cards into a personal loan with a lower rate. Schulz spoke about this strategy as a promising way to raise revenue and take some pressure off finances.
“Rather than wait for a rate cut that may be months away, borrowers could switch now to a zero-interest balance transfer credit card or consolidate and pay off high-interest credit cards with a lower-rate personal loan,” – Schulz.
The Federal Reserve’s decision to keep interest rates steady may not offer immediate relief to consumers grappling with rising costs. The fixed nature of federal student loan rates shields most borrowers from direct impacts of Fed movements and economic turmoil.
Rates on 15- and 30-year fixed mortgages remain strongly tied to daily Treasury yields and market conditions. Consequently, these rates have changed very little over the years. Schulz sees cause for alarm among prospective homebuyers, who might have to prepare themselves for prolonged high rates into the summer months.
“I don’t see any major changes coming in the immediate future, meaning that those shopping for a home this summer should expect rates to remain relatively high,” – Schulz.
Consumers are experiencing hardship across various borrowing sectors. Other financial experts point out that in today’s climate, savers may still be able to find their silver lining.
“The thing that is lost in this is that savers, including millions of retirees, are actually earning good income on their savings, provided they have their money parked in a competitive place,” – Greg McBride.