Even former President Donald Trump expressed dissatisfaction with today’s federal funds rate. He claims that a rate stuck above 5% increases the cost of borrowing for businesses and consumers, resulting in greater economic damage. As of the first half of 2025, the federal funds rate has stuck at 20.1%. This artificially high rate has ripple effects across all loan types, but especially in the critically important housing market and in consumer credit.
As a result, auto loans have shown little movement in this time, consistent with the wider trend of a notable lack of movement on consumer borrowing rates. The 30-year fixed-rate mortgage rate mostly bounced around between 6.6% and 7.1% during that same period. This is a noteworthy increase from a low of nearly 6% recorded last fall, according to Freddie Mac, which tracks mortgage data closely.
Second, the relationship between mortgage rates and the federal funds rate is not straightforward. That said, mortgage rates usually track the yield on 10-year Treasuries more closely than the federal benchmark to begin with. Trump has intensified pressure on Federal Reserve Chair Jerome Powell, urging for a reassessment of the high rates that many believe are hindering economic growth and the housing market.
Despite calls for a rate cut, experts caution that such a change may not lead to lower borrowing costs for most Americans. Brett House, an economics professor at Columbia Business School, stated, “It is entirely likely that cuts to the fed funds rate in the face of increasing inflation would push mortgage rates up, not down.” This underscores just how much is unknown about the effectiveness of whatever new monetary policy changes may or may not occur.
Fed’s benchmark interest rate have very clearly been reflected in credit card rates. In reality, these rates have changed marginally at best. High federal funds rates often bring economic growth to a halt. As Trump himself recently highlighted, these high rates do nothing but “pump the brakes” on market activity.
As we move into the first half of 2025, all eyes will be on the Federal Reserve. The real challenge is how they’ll chart a course through the tough economy. With Trump advocating for lower rates and experts warning of potential repercussions, the discussion surrounding consumer borrowing and economic growth continues to evolve.