The Federal Reserve held interest rates steady Wednesday between 4.25% and 4.5% – exactly as interest-rate traders’ bets had predicted after the policy-making body’s meeting in early May.
The traders’ bets now predict there’s little chance the Fed will lower interest rates until its meeting on Sept. 17. That means Americans won’t see short-term interest rates – which are heavily influenced by the Fed’s decisions – decline for at least another three months.
Following the Fed’s Wednesday announcement, there was still just a 58% chance the Fed will cut its interest rate in September, according to the CME FedWatch tool. The FedWatch tool tracks the likelihood that the Fed will change the federal funds rate based on futures prices.
The Fed’s economic projection also released Wednesday showed that the majority of the policy-making committee expect they will still make two rate cuts this year.
When interest rates could fall in coming months
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Will interest rates drop in 2025?
President Donald Trump’s tariff proposals have put the Fed in a difficult position: Inflation stemming from the COVID-19 pandemic has moderated, but consumer prices may be on the rise. Inflation ticked up slightly in May from a year earlier to 2.4%. Analysts suggested lower energy prices last month helped to minimize the impact of tariffs.
How much tariffs will raise prices in the coming months remains uncertain, as most remain unresolved. If the Federal Reserve lowers interest rates before it’s clear how tariffs are affecting the prices we pay, it could unintentionally trigger inflation − by encouraging more borrowing to pay for goods made more expensive by those tariffs.
The Fed tries to hold inflation steady at about 2% each year while keeping as many Americans employed as possible. The May jobs report released June 6 showed unemployment remained steady at 4.2% and the economy added a 139,000 jobs.
Though other indicators also suggest the economy remains relatively strong, Powell cautioned after the May meeting that recent inflation and employment data could be indicators of early signs of concern. But he said the uncertainty surrounding tariffs and their impact on the economy has led them to keep interest rates unchanged.
“I think there’s a great deal of uncertainty about, for example, where tariff policies are going to settle out,” Powell said. “When they do settle out, what will be the implications for the economy for growth and for employment? I think it’s too early to know that.”
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 3 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 primarily influenced by long-term interest rates, which in turn are shaped by expectations about inflation and the overall direction of the economy. Since the Federal Reserve began cutting interest rates in late September, mortgage rates have risen in tandem with short-term rates by several percentage points.
More importantly for homebuyers, mortgage rates are still more than double what they were in 2021. In December 2021, with rates at 3.1%, a buyer purchasing a $425,000 home with a 20% down payment would have paid $1,453 a month in principal and interest. At last week’s rate of 6.8%, that same mortgage would cost $763 more each month.
Contributing: Rachel Barber
