What does that mean for your money?

The Federal Reserve announced on Wednesday that it will leave interest rates unchanged as inflation continues to prove firmer than expected.

However, the move also dashes hopes that the Fed can start cutting interest rates soon and relieve consumers of higher borrowing costs.

The market is now pricing in one rate cut later in the year, according to the Chicago Mercantile Exchange's FedWatch gauge of futures market pricing. The company started 2024 anticipating at least six cuts, which is “total fantasy land,” said Greg McBride, chief financial analyst at Bankrate.com.

He said this change in expectations of interest rate cuts leaves many families in a lurch. “Certainly from a budgetary perspective, not only does inflation remain high, it is outweighed by the cumulative increase in prices over the past three years.”

“Prioritizing debt repayment, especially high-cost credit card debt, remains paramount as interest rates promise to stay high for some time,” McBride said.

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Inflation has been an ongoing issue since the Covid-19 pandemic, when prices rose to their highest levels since the early 1980s. The Fed responded with a series of interest rate hikes that raised its benchmark interest rate to its highest level in more than 22 years.

The federal funds rate, set by the U.S. central bank, is the interest rate at which banks borrow and lend to each other overnight. Although this is not the rate that consumers pay, the Fed's moves still affect the borrowing and saving rates they see every day.

The sharp rise in interest rates has caused consumer borrowing costs to rise significantly, putting many households under pressure.

Increased inflation has also been bad news for wage growth, as real average hourly wages rose just 0.6% over the past year, according to the Labor Department's Bureau of Labor Statistics.

Even with potential interest rate cuts on the horizon, consumers will not see a significant decline in their borrowing costs, according to Columbia Business School economics professor Brett House.

“Once the Fed cuts interest rates, it may extend that through other rate cuts, but there is nothing that necessarily guarantees that,” he said.

From credit card and mortgage rates to car loans and savings accounts, here's a look at where these rates could go in the second half of 2024.

Since most credit cards have a variable interest rate, there is a direct connection to the Federal Reserve Bank's standard. In the wake of the interest rate hike cycle, the average credit card rate has risen from 16.34% in March 2022 to nearly 21% today — an all-time high.

Annual percentage rates will start to fall when the Fed lowers interest rates, but even then will only ease very high levels. With only a handful of quarter-point cuts possible, annual interest rates are unlikely to fall much, according to Matt Schulz, senior credit analyst at LendingTree.

He added: “If Americans want to lower interest rates, they should do it themselves.” Try contacting your card issuer to request a lower rate, consolidating and paying off high-interest credit cards with a low-interest personal loan or switching to an interest-free balance transfer credit card, Schulz advises.

Although interest rates on 15- and 30-year mortgages are fixed, tied to Treasury yields and the economy, anyone shopping for a new home loses a significant amount of purchasing power, due in part to inflation and the Fed's policy moves.

The average interest rate on a 30-year mortgage is just above 7.3%, up from 4.4% when the Fed started raising interest rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.

“Going forward, mortgage rates will likely continue to fluctuate, and it is impossible to say with certainty where they will ultimately end up,” noted Jacob Channel, chief economist at LendingTree. “However, there is a good chance that we will need to get used to interest rates above 7% again, at least until we start getting better economic news.”

Although car loans are fixed, payments are increasing because car prices are rising along with interest rates on new loans, resulting in less expensive monthly payments.

The average interest rate on a five-year new car loan is now more than 7%, up from 4% when the Fed started raising interest rates, according to Edmunds. However, competition among lenders and more incentives in the marketplace have begun to reduce some of the cost of buying a car recently, said Evan Drury, director of insights at Edmunds.

“Any price reduction would be particularly welcome as there is a growing proportion of consumers with legacy trades who have been sitting out the market frenzy waiting for a car scene that looks more like the last time they bought a car for six or seven years,” Drury said.

Federal student loan rates are also fixed, so most borrowers are not immediately affected. But undergraduates who took out direct federal student loans for the 2023-24 academic year are now paying 5.50%, up from 4.99% in 2022-23 — and any loans taken out after July 1 will likely be even higher. Interest rates for next school year will depend on the 10-year Treasury auction later this month.

Private student loans tend to have a variable interest rate tied to Treasury bonds or another price index, meaning these borrowers actually pay more in interest. However, the amount varies depending on the standard.

For those struggling with existing debt, there are ways federal borrowers can ease their burdens, including income-based plans with $0 monthly payments, economic hardship and unemployment deferrals.

Private loan borrowers have fewer options for forgiveness — although some may consider refinancing once interest rates start to fall, and those with better credit may actually qualify for a lower interest rate.

While the central bank has no direct influence on deposit interest rates, returns tend to be tied to changes in the target federal funds rate.

As a result, interest rates on higher-yielding online savings accounts have made big moves and now pay more than 5.5% — above the rate of inflation, a rare win for anyone building a cash cushion, McBride said.

“The mantra of higher interest rates for longer is music to the ears of savers who will continue to enjoy inflation-beating returns on safe savings accounts, money markets and CDs for the foreseeable future,” he said.

Currently, high-yield certificates of deposit pay over 5.5%, which is equal to or better than a high-yield savings account.

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