Amid the geopolitical turmoil, the Federal Reserve left interest rates unchanged at the end of Wednesday’s policy meeting.
Analysts said the energy shock from the Iran war and rising inflation expectations ruled out any possibility of a rate cut.
Since December, the federal funds rate has remained stable within the target range of 3.5% to 3.75%. The Fed’s benchmark sets the amount banks charge each other for overnight loans, but it also has a trickle-down effect on many consumers’ borrowing and savings rates.
The central bank’s decision will do little to ease budget pressure for Americans struggling in the face of rising gas prices and overall affordability challenges.
“Higher fuel costs and downstream effects on shipping, travel and trade are likely to put further pressure on consumer prices,” said Stephen Cates, a certified financial planner and financial analyst at Bankrate. “A rate cut in the face of rising inflation would be difficult to justify, even if it had political support.”
Powell under pressure
President Donald Trump has insisted that inflation has been “defeated” and has called on Federal Reserve Chairman Jerome Powell to lower the central bank’s benchmark interest rate.
“Where is Fed Chairman Jerome ‘Too Late’ Powell today? He should lower interest rates immediately, without waiting for the next meeting,” President Trump wrote in a March 12 post on Truth Social. Chairman Powell has just one meeting left until his term ends.
Before the oil crisis, inflation was running above the Fed’s 2% target, but it wasn’t getting worse. Now, rising energy costs could have a long-term impact on inflation, experts say.
“Inflationary pressures will gradually subside as tensions in the Iran conflict ease. Until then, the economy may need to absorb another period of high inflation,” Kates said.
How the Fed’s decision will affect your finances
The benchmark 10-year US Treasury yield rose to 4.208% following the US and Israeli attack on Iran. The 10-year bond yield is a barometer for mortgage rates and other long-term loans.
Short-term interest rates are tightly fixed by the prime rate, which is typically 3 percentage points higher than the federal funds rate.
credit card
Most credit cards have short-term variable interest rates, so they are tied closely to the Federal Reserve’s benchmark.
The average annual interest rate has remained at just under 20% since November, according to Bankrate.
“Credit card rates tend not to fluctuate significantly unless forced to do so by the Fed, so we expect them to remain relatively stable for several months,” said Matt Schultz, chief credit analyst at LendingTree.
mortgage interest rate
Fixed interest rates on mortgages are not tied directly to the Federal Reserve, but are primarily linked to Treasury yields and the U.S. economy.
As of Tuesday, the average interest rate on a 30-year fixed-rate mortgage had already risen to 6.29% from 5.99% at the end of February, due to concerns that escalating wars in the Middle East would accelerate inflationary pressures, according to Mortgage News Daily.
“Global uncertainty, a volatile economic outlook, and the Fed’s pause in rate cuts are likely to continue, so we expect mortgage rates to remain relatively volatile,” Schultz said.
student loan
Federal student loan interest rates are also fixed and are based in part on 10-year Treasury bills. According to the U.S. Department of Education, the current interest rate for undergraduate federal student loans made through June 30 is 6.39%.
car loan
Auto loan debt is another headache for more than 100 million Americans, due in part to rising prices and high financing costs, according to the Consumer Financial Protection Bureau.
The average loan amount for a new car reached a record high of $43,759 late last year, Edmunds said. The average monthly payment for a new car is at an all-time high, as is the percentage of new car buyers who have a car payment of $1,000 or more.
“Car buyers continue to combat rising car prices by extending loan terms to make monthly payments more affordable. Unfortunately, these extended terms translate into higher interest rates, and average interest rates remain elevated.” This month, rising gas prices have only exacerbated affordability concerns.
One bright spot for car buyers: Under a temporary provision enacted as part of the One Big Beautiful Bill Act that President Donald Trump signed in July, eligible taxpayers can deduct up to $10,000 in auto loan interest this tax season.
savings rate
For savers, the Fed’s decision has another silver lining.
Although the Fed does not directly affect deposit rates, yields tend to correlate with changes in the target federal funds rate. So while interest rates on certificates of deposit and high-yield savings accounts are down from recent highs, they still remain above the annual rate of inflation.
As long as the central bank remains on the sidelines, “interest rate suspension is good news for savers,” Schulz said.
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