July 18, 2024

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Inflation report and Fed meeting: live updates

Inflation report and Fed meeting: live updates

US families hoping interest rates will fall soon will have to wait a little longer.

The Federal Reserve is expected to keep its benchmark interest rate unchanged on Wednesday, at least until there are clearer signs that inflation is growing more slowly. But forecasters will be listening to Jerome Powell, the Fed’s chairman, for any clues about how long they expect to keep interest rates at relatively high levels.

The central bank raised the key interest rate to 5.33 percent from near zero in a series of increases between March 2022 and last summer, and it has remained unchanged since then. The goal was to curb inflation, which has slowed considerably but is still higher than the Fed would like, suggesting interest rates could remain high for longer than economists previously expected.

For people with money stashed in high-yield savings accounts, persistently high interest rates translate into more interest earnings. But for people saddled with high-cost credit card debt, or aspiring homeowners sidelined by rising interest rates, a low interest rate environment can’t come soon enough.

“Shopping around, whether you’re looking for a car loan, credit card, personal loan or any other type of loan, can make a big difference,” said Matt Schulz, an analyst at LendingTree, an online loan marketplace.

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 even when prices eventually do come down.

“The urgency to pay off high-cost credit cards or other debt has not diminished,” said Greg McBride, chief financial analyst at Bankrate. “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.

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The average interest rate on credit cards with interest rates was 22.63 percent at the end of March, according to the bank’s report Federal ReserveThis compares to 20.92% a year ago 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, reducing affordability and declining demand among potential car buyers. But automakers and dealers have begun offering more discounts and other incentives, luring some buyers back into the market.

“In May, we saw some positive news on the sales front,” said Erin Keating, executive analyst for Cox Automotive. “Much of these sales gains have been offset by higher stimulus and lower prices, which is good news for consumers worried about inflation.”

The average interest rate on new car loans was 7.3 percent in May, according to the bank Edmundsup from 7.1 percent in 2023 and 5.1 percent in 2022. Used car prices were even higher: The average loan rate was 11.5 percent in May, up from 11 percent in 2023 and 8.2 percent in 2022.

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 also remained high: The most popular loan crossed the 7 percent mark in mid-April and has largely maintained that position since then, making homeownership a more expensive proposition.

The average interest rate on a 30-year mortgage was 6.99 percent as of June 6, according to Freddie Mac, compared with 6.71 percent in the same week last year.

It’s been a rollercoaster ride. Interest rates rose to 7.79 percent in late October before falling by about a point and stabilizing — at least temporarily.

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Sam Khater, chief economist at Freddie Mac, said: “Interest rates do not exceed 7%, and we expect them to decline modestly during the remainder of 2024.” “If a potential buyer is looking to purchase a home this year, waiting for lower prices may result in a small saving, but shopping around for the best price can still be very beneficial.”

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 8.6% as of June 6. According to Bankratewhile the average home equity line of credit was 9.18 percent.

Student loans

Borrowers who already have federal student loans are not affected by the Fed’s actions because that debt carries financial burdens Fixed exchange rate established by the government.

But interest rates on new federal student loans are about to rise to their highest level in a decade: Borrowers with federal college loans taken out after July 1 (but before July 1, 2025) will pay 6.53 percent, up from 5.5 percent for the loans. Disbursed in the United States. The same period of the previous year.

Loan rates for graduate and professional students will rise to 8.08 percent. Interest rates on PLUS loans – Available financing For parents of undergraduate students as well as postgraduate students – it will rise to 9.08 percent.

Rates are quoted each July using a formula based on the 10-year Treasury bond auction in May.

Private student loan borrowers have already seen interest rates rise due to previous interest rate increases: Both fixed- and variable-rate loans are tied to benchmarks that track the federal funds rate, the Federal Reserve’s benchmark rate.

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Savings vehicles

Savers typically benefit when the federal funds rate is higher because many banks pay more on their savings accounts — especially if they want to attract more deposits. (Many banks make money from the difference between the cost of their funds, such as deposits, and the interest rate they charge on loans.)

Online institutions tend to price their savings accounts more competitively than their traditional counterparts, although some began cutting interest rates because they were anticipating the Fed would cut interest rates sometime this year. Certificates of deposit, which tend to track similarly dated Treasuries, have seen their prices fall several times this year.

“Small gains and declines in online deposit interest rates will likely continue this year until we get closer to the next Fed rate cut or rate hike,” said Ken Tomin, founder of DepositAccounts.com.

One-year certificates of deposit at online banks averaged 4.96 percent as of June 3, down from a peak yield of 5.35 percent in January, but up from 4.86 percent a year earlier, according to DepositAccounts.com. But you can still find one-year CDs with a yield of more than 5.25 percent.

Most online banks have kept interest rates on savings accounts relatively steady: The average yield on an online savings account was 4.40% as of June 3, down only slightly from the peak of 4.49% in January, according to DepositAccounts.com, and up from 3.98. %. percent a year ago.

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 5.12 percent on June 11.