The Fed may keep interest rates unchanged at its July meeting
The Fed is expected to keep interest rates on hold at its upcoming July meeting - even as inflation data cools, rising energy prices and renewed tensions with the United States complicate matters for Fed Chairman Kevin Warsh. The Fed that Warsh takes over has been facing inflation above its 2% target since 2021, but the consumer price index - a broad measure of inflation - unexpectedly fell last month, taking the annual rate to 3.5% in June. However, in the weeks since, oil prices have soared again as conflicts in the Middle East escalate. Traders lowered expectations for a rate hike when the Federal Reserve meets this week, according to CME Group's FedWatch tool. Market pricing shows that the Fed is more likely to consider adjusting interest rates in September. For Wash, price stability remains a headwind despite pressure from President Donald Trump to lower the federal funds rate, said Brett House, an economics professor at Columbia Business School. "This sets the stage for a potential conflict between Trump and the Fed, with his desire for lower interest rates unlikely to materialize anytime soon," he said. How the Fed affects consumer wallets The Fed's benchmark interest rate determines how much banks charge each other for overnight loans. This rate, in turn, affects a wide range of consumer borrowing and savings rates. When the Fed raises its benchmark interest rate, borrowing costs rise, which can slow economic activity and help ease inflation. Lower interest rates tend to encourage spending and stimulate the economy, but they can also lead to higher prices. Short-term interest rates are closely tied to the prime rate, which is typically 3 percentage points higher than the federal funds rate. Long-term interest rates are more dependent on inflation expectations and other economic factors. "Consumers need to remember that the interest rates they face are not set solely by the Fed. The bond market also has a large say in determining the interest rates consumers pay," House said. The yield on the 10-year U.S. Treasury note, which is the basis for mortgages and other long-term loans, rose 5 basis points on Thursday. "This will keep borrowing costs high for consumers both in terms of short-term borrowing and long-term loans," House said. For example, 15-year and 30-year fixed-rate mortgages typically follow Treasury rates and economic trends. "Mortgage rates held steady at just over 6.50% as encouraging inflation data were offset by higher oil prices and renewed tensions between the U.S. and Iran," said Jeff Degurashian, chief investment officer and chief economist at LoanDepot. Car loan interest rates are tied to several factors, including the Federal Reserve's base rate. Car buyers are taking on larger loans and longer terms to address affordability challenges in the auto market as financing costs remain high, according to new data from Edmunds. Although federal student loan rates are fixed for the life of the loan, rates for new borrowers will rise over the next year based on the results of the last 10-year Treasury auction in May. In contrast, most credit cards have variable interest rates that are more directly tied to the Federal Reserve's base rate. However, with the Federal Reserve expected to keep interest rates on hold, credit card APRs are also likely to remain elevated. According to LendingTree, the average interest rate on new credit card offers is currently 23.79%. "Average rates have been very stable, staying the same in three of the past four months," said Matt Schultz, chief credit analyst at LendingTree. Savings rates also tend to be tied to changes in the federal funds target rate. Therefore, keeping interest rates unchanged keeps savings yields relatively high. "Now is still a great time to save," Schultz said. "Interest rates on certificates of deposit and high-yield savings accounts are down from their highs a few years ago, but are still strong by historical standards and are likely to stay that way for some time." Open a futures account on Sina's cooperative platform, safe, fast and guaranteed