The Federal Reserve wrapped up its two-day meeting on March 19 with a move that surprised no one – interest rates would remain unchanged. This decision affects all of the borrowing and savings rates that Americans face every day. Influenced by concerns about potential economic weakness and the complexities introduced by tariff policies, the Fed's move reflects a cautious approach to monetary policy.
The Federal Reserve Board determines the federal funds rate. This rate is the baseline for what banks charge one another on overnight loans. This staggering rate has a cascading effect throughout every sector, raising the cost of borrowing for consumers and businesses to all sectors. The choice to leave everything unchanged now comes at a moment of rapidly rising costs in many key consumer financial products. These are typical consumer loans—auto loans and mortgages, for example.
As of March 14, the average interest rate for a five-year, new car loan is 7.2%. In comparison, that average auto loan rate for used cars cloistered at a much higher 11.3%, per Edmunds. These rates represent the true cost of borrowing for consumers wanting to buy new cars. In the housing market, the average rate for a 30-year, fixed-rate mortgage was 6.78% as of March 19. The daily average for the 15-year, fixed-rate mortgage was 6.24% as of the same day, per Mortgage News Daily.
Fears of an economic downturn, which led to a temporary drop in mortgage rates last week, are playing into this uncertainty. Supply shocks The Federal Reserve has taken the risks of inflation from tariffs into account. This fear prompted them to take a more dovish stance towards increasing interest rates.
The Federal Reserve’s recent decisions to hold rates steady. At the same time, average annual percentage rates for credit cards have dipped a little bit. As Bankrate noted last week, the average credit card rate has actually fallen to 20.09%. That’s down from 20.27% at the beginning of the year. This damping effect on rates is a good thing for all the consumers who’ve had to carry credit card balances recently.
The Federal Reserve’s decision-making process is as intricate as a spider’s web. President Donald Trump's tariff policies have played a role in shaping the Federal Reserve's approach, particularly concerning potential inflationary pressures. Our present inflation rate of 2.8% is now less than half that of last year’s 5% rate. This decreased inflation rate gives the Fed a bit of breathing room in their monetary policy shifting.
Beyond this initial auction, the next 10-year Treasury note auction will be crucial. Most importantly, it will determine the interest rates for the coming school year. These rates will reverse consonance across a vast swath of financial products, forcing students back into predatory forms of long-term investment. Economists and consumers alike will be watching the Federal Reserve closely. Equally important, they will be looking at what the market is telling them with regards to these auctions.
The Federal Reserve’s latest position stands as a careful gambit between nurturing ongoing economic expansion and controlling the dangers to inflation. By keeping interest rates steady, the Federal Reserve aims to avoid stifling economic activity while remaining vigilant about potential inflationary pressures.
