Fed interest rates in July are expected to stay put, keeping borrowing costly
Markets expect the Fed to hold rates at its July meeting, keeping loan costs high while savers continue to earn elevated yields.
By Dev Ramirez · Crypto Correspondent
· 3 min read
Fed interest rates in July are expected to stay unchanged, a decision that would keep borrowing costs elevated for households while preserving relatively attractive yields for savers. Markets are looking for the Federal Open Market Committee to leave its benchmark rate in place at the end of its July 29 meeting, according to CME Group’s FedWatch gauge.
The backdrop is mixed. CNBC reported that inflation has cooled, with the consumer price index, a broad inflation measure, falling unexpectedly last month and bringing the annual inflation rate to 3.5% in June. Since then, oil prices have climbed amid renewed tensions involving Iran, complicating the outlook for Federal Reserve Chairman Kevin Warsh.
Market pricing now points to a higher chance that the Fed waits until September to consider a rate change, according to CME Group’s FedWatch tool. Brett House, an economics professor at Columbia Business School, told CNBC that inflation remains a challenge for the Fed even as President Donald Trump has pushed for lower interest rates.
How does the Fed rate decision affect consumers?
The Fed’s benchmark rate, known as the federal funds rate, is what banks charge each other for overnight loans. That rate filters through to many consumer products, including credit cards, auto loans, mortgages and savings accounts.
Higher rates usually make loans more expensive, which can cool spending and help reduce inflation. Lower rates can make borrowing cheaper and support economic activity, but they can also add pressure to prices.
Short-term borrowing costs tend to move closely with the prime rate, which is typically 3 percentage points above the federal funds rate, according to CNBC. Longer-term rates, including many mortgage rates, depend more on inflation expectations, Treasury yields and the broader economy.
House told CNBC that consumers should not view the Fed as the only force behind the rates they pay, because the bond market also plays a major role. The yield on the 10-year Treasury note, a key reference point for mortgages and other longer-term loans, rose 5 basis points on Thursday. A basis point is one-hundredth of a percentage point.
What stays expensive if the Fed holds rates?
Mortgage borrowers are still facing rates above recent lows. Jeff DerGurahian, LoanDepot’s chief investment officer and head economist, told CNBC that 15-year and 30-year fixed mortgage rates are holding just above 6.50%, with better inflation data being offset by higher oil prices and renewed tensions between the U.S. and Iran.
Auto loans are also affected by the Fed’s benchmark rate, along with other factors. Edmunds data cited by CNBC shows that elevated financing costs have pushed some car buyers toward larger and longer loans as affordability remains strained.
Federal student loan rates are fixed for the life of each loan, so existing borrowers do not see their rate change when the Fed meets. CNBC reported that rates for new borrowers will rise in the year ahead based on the last 10-year Treasury note auction in May.
Credit cards are more directly exposed to the Fed because most cards carry variable annual percentage rates, or APRs. LendingTree said the average rate on a new credit card offer is 23.79%. Matt Schulz, LendingTree’s chief credit analyst, told CNBC that the average has been notably steady, unchanged in three of the past four months.
Savers remain the main beneficiaries of higher rates. Savings account and certificate of deposit yields tend to track the Fed’s target rate, so a pause would likely keep yields high by historical standards. Schulz told CNBC that CD and high-yield savings rates have slipped from earlier peaks but remain strong and could stay that way for some time.
This story draws on original reporting from CNBC.
