The Federal Reserve’s recent decision to hold interest rates steady brings important news for consumers throughout the United States. We recognize that Americans are already dealing with the anxiety of inflation and increased borrowing costs. This effect is evident in their defaulting on credit cards, auto loans, and mortgages. Our prevailing economic environment only adds to the burdens households are working to alleviate debt and obtain new credit.
To make matters worse, according to Bankrate, the average credit card annual percentage rate (APR) is over 20% for the first time ever. The recent spike in credit card interest rates has consumers rightfully worried. Many banks have raised their rates to record levels in 2024, and some issuers are maintaining these elevated rates, leaving borrowers feeling the pinch.
The automotive market is experiencing strain. According to research by Bank of America, 20% of all households with a monthly car payment are now spending more than $1,000 a month on them. Rising prices on new and used cars exacerbates this problem. These price increases are, in part, due to tariffs on imported vehicles—a policy enacted during the Trump administration. Ivan Drury, director of insights at Edmunds, remarked:
“Every way you slice it, car buyers are struggling to find a deal in today’s car market, and financing a new vehicle is becoming cost-prohibitive for more shoppers.”
Current Mortgage Rates and Their Impact
As of June 17, that average rate for a 30-year fixed-rate mortgage is 6.91%. At the same time, the average rate on a 15-year fixed-rate mortgage is 6.17%. These skyrocketing rates have contributed to home affordability becoming a top deal breaker for many would-be buyers. Matt Schulz, chief credit analyst at LendingTree, stated:
“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.”
With elevated mortgage rates, would-be homebuyers are already at a disadvantage as they calculate the costs of their next homes. Home equity lines of credit are approaching first mortgage borrowing costs into the double digits. This trend is exacerbating an already substantial financial planning burden for many families.
Student Loan Rates and Economic Uncertainty
They’re determined by the yield of the 10-year Treasury note auction that occurs in May. Right now, the interest rate on undergraduate federal student loans issued through June 30 is 6.53%. Beginning July 1, the rate will drop slightly to 6.39%.
That effect isn’t lost on students and families paying for higher education. The rising and falling rates further illustrate the economic uncertainty that still plagues borrowers, from students to small business owners. Greg McBride, Bankrate’s chief financial analyst, noted:
“Borrowing rates are high, with mortgage rates near 7%, many home equity lines of credit in double-digit interest rate territory, and the average credit card rate still above 20%.”
As consumers face these headwinds, more and more are seeking new solutions that can help them take control of their finances. Matt Schulz from LendingTree emphasized the importance of exploring high-yield savings accounts:
“Shopping around for high-yield savings accounts, if you haven’t done it already, is one of the best financial moves you can make to take advantage of rates being high.”
The Broader Economic Climate
The Federal Reserve’s inflation-fighting benchmark interest rate creates a floor for the interest rates banks charge each other for overnight lending. This rate is the major driver of borrowing and savings rates that Americans see every day. If the economy takes a turn and the Fed’s benchmark rate stays elevated, consumers can expect more economic pain in the future.
Charlie Wise, senior vice president and head of global research and consulting at TransUnion, expressed concern about the persistent high-interest rates:
“Interest rates on credit cards are painful because they are so high.”
He further explained that even minor adjustments to the federal funds rate would only marginally affect credit card interest rates:
“The reality is you could drop the fed funds rate by two full basis points and all you are doing is lowering your interest rate from say 22% to 20%.”
The confusion over tariffs is further fueling inflation worries and complicating matters even more for consumers. Greg McBride highlighted this sentiment:
“With the uncertainty around tariffs and how that could impact inflation readings in the month ahead, there’s an ongoing sense of another shoe about to drop.”