If you’re wondering when interest rates on credit cards and car loans will start falling again, don’t hold you breath this week when the Federal Reserve’s policy committee meets.
Interest-rate traders see little chance that the Fed will lower interest rates at the end of Wednesday’s meeting or the following one. That means Americans won’t see short-term interest rates – which are heavily influenced by the Fed’s decisions – decline for at least another two months.
As of Tuesday afternoon, there’s only a 56% chance the Fed will cut its short-term interest rate at its late July meeting, according to the CME FedWatch Tool. The FedWatch tool tracks the likelihood that the Fed will change the fed funds rate based on futures prices.
When interest rates could fall in coming months
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Will interest rates go down in 2025?
President Donald Trump‘s tariff proposals have put the Fed in a difficult position: Inflation stemming from the pandemic continues to moderate, but it’s unclear how much tariffs will increase prices in the coming months. Lower interest rates could encourage us to borrow more to pay for items made more expensive by tariffs, which could spark inflation again.
The Fed tries to let inflation rise about 2% each year while keeping as many Americans employed as possible. The April jobs report released last week showed unemployment remained steady, and the economy added a 177,000 jobs.
With other data points also suggesting the economy on a solid footing, it appears Fed chief Jerome Powell and other voting Fed members aren’t as likely restart their rate cuts.
On American Public Media’s radio show “Marketplace” in April, Raphael Bostic, president and CEO of the Federal Reserve Bank of Atlanta, compared the uncertainty surrounding tariffs to driving in fog.
“When you’re driving in the fog, you’ve just got to slow down,” Bostic said. “When the fog gets thicker, you’re going to pull over and wait. I think that’s the wise thing to do. And I think for me, it’s pretty clear, the fog has gotten quite a bit thicker in the last couple of weeks.”
Where interest rates stand on credit cards and car loans
The Fed’s three interest rate cuts in 2024 quickly translated into lower payments for short-term loans made on credit cards and for cars:
Increases and decreases in credit card interest rates are closely linked to the prime rate, which is generally three percentage points higher than the fed funds rate. Auto loans also follow a similar pattern. All three remain well above where they were in early 2022 when Powell signaled the Fed planned to start raising interest rates to curb inflation.
Higher mortgage interest rates add to housing troubles
Mortgage rates are affected mostly by longer-term interest rates, but those rates can also be driven by short-term expectations about inflation or the direction of the economy. Mortgage rates are few percentage points higher than they were when the Fed starting cutting interest rates in late September.
More importantly for home buyers, though, mortgage rates remain more than double what they were in 2021. In December 2021 with mortgage rates at 3.1%, a new homeowner would have paid $1,453 monthly in principal and interest for a $425,000 house with a 20% downpayment. At 6.8% last week, the same house with a new 30-year mortgage would cost $763 more per month.
