Fed holds firm while wallets feel the pinch

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Published Date 6/23/2025

Unchanged. It’s a word that can bring both relief and worry. When it comes to interest rates, however, it’s disappointing for all these days.

CNBC’s Jessica Dickler reports that the Fed decision to leave rates alone came amid demands from the White House to lower the key borrowing rate benchmark, after escalating attacks on Fed Chair Jerome Powell only resulted in his current resolve.

“Trump has been pressuring Powell for a rate cut, arguing that maintaining a fed funds rate that is too high makes it harder for businesses and consumers to access cash, adding more strain to the U.S. economy,” says Dickler. “But Powell has said that the federal funds rate is likely to stay higher as the economy changes and policy is in flux.”

She reports that that is enough to keep the central bank on the sidelines for now, with Bankrate’s Greg McBride saying, “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.”

How does it work? The federal funds rate sets what banks charge each other for overnight lending, explains Dickler. But it also has a domino effect on almost all of the borrowing and savings rates Americans see every day.

“When the Fed hiked rates in 2022 and 2023, the interest rates on most consumer loans — including credit cards, auto loans and home equity lines of credit — quickly followed suit,” she says. “Even though the central bank lowered its benchmark rate three times in 2024, those consumer rates are still elevated, and are mostly staying high, for now.”

A snapshot: Borrowing rates are high, with many home equity lines of credit in double-digit interest rate territory, and the average credit card rate still above 20%, according to McBride. “But savers continue to be rewarded with inflation-beating returns on the top-yielding savings accounts, money market accounts, and certificates of deposit. Retirees, in particular, are earning good income on their hard-earned savings.”

Dickler points out how the Fed affects our daily lives, first and foremost in the form of credit. “Many credit cards have a variable rate, so there’s a direct connection to the Fed’s benchmark. And a rate cut is now likely postponed until at least September.”

Borrowers, she reasons after conferring with experts, are better off switching to a zero-interest balance transfer credit card, or consolidating and paying off high-interest credit cards with a lower-rate personal loan.

If you’re noticing seas of brand new cars spilling over in dealerships all along your local freeway, auto loan stagnancy comes next. Auto loan rates are tied to the Fed as well, and not in an insignificant way. “With the Fed’s benchmark holding steady, the average rate on a five-year new car loan was 7.3% in May, near a record high, while the average auto loan rate for used cars was 11%, according to Edmunds.

Top that off with rising car prices, and every way you slice it, car buyers are struggling to find a deal in today’s car market.

On to mortgages. While these benchmarks don’t directly track the Fed, they are largely tied to Treasury yields and the economy. The result? Concerns over tariffs and ongoing uncertainty about future costs have kept those rates within the same narrow range for way too many 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,” said Matt Schulz, chief credit analyst at LendingTree.

As for student loans, those rates are set once a year, based in part on the last 10-year Treasury note auction in May and fixed for the life of the loan. So most borrowers are somewhat shielded from Fed moves and recent economic turmoil.

While borrowers with existing federal balances won’t see their rates change, however, many are now facing fewer forgiveness options.

And lastly — savings. Just because the central bank has no direct influence on deposit rates doesn’t mean the yields don’t tend to be correlated to changes in the target federal funds rate.

“Yields for CDs and high-yield savings accounts aren’t at the sky-high levels they were a year ago, but they’re still really strong,” said LendingTree’s Schulz, who reports that top-yielding online savings accounts currently pay more than 4%, on average — well above the annual rate of inflation. That translates into shopping around for high-yield savings accounts, if you haven’t done it already – no doubt one of the best financial moves you can make right now.

CNBC,TBWS

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