A Fed pause likely won’t help struggling consumers

The Federal Reserve is expected to pause hiking interest rates at the conclusion of Wednesday’s meeting marking the end to 10 straight increases which have driven borrowing costs above 5% squeezing consumers and creating headwinds for the economy.

Despite the pause, Americans are unlikely to see any relief according to Greg McBride, CFA, chief financial analyst with Bankrate.com.

“A pause won’t bring borrowing rates lower, particularly for variable rate debt such as credit cards and home equity lines of credit that have increased in step with the Fed’s 10 previous interest rate hikes,” McBride said. “Elevated inflation and a strong labor market mean the Fed is nowhere close to cutting interest rates, so borrowers will continue to be dealing with high interest rates for months to come, even if the Fed doesn’t hike rates further.”

“A pause won’t bring borrowing rates lower, particularly for variable rate debt such as credit cards and home equity lines of credit that have increased in step with the Fed’s 10 previous interest rate hikes, elevated inflation and a strong labor market mean the Fed is nowhere close to cutting interest rates, so borrowers will continue to be dealing with high interest rates for months to come, even if the Fed doesn’t hike rates further.”

– Greg McBride, CFA, chief financial analyst with Bankrate.com.com

INFLATION COOLS SHARPLY IN MAY

Rates for auto loans, credit cards and mortgages have all trended higher in recent months leaving consumers with less cash. 

“Home equity rates are the highest in more than 20 years, credit card rates are the highest on record, auto loan rates are the highest since 2010, and mortgage rates are again flirting with 7%, a relic of two decades ago.” McBride also says paying down high cost, variable rate debt is an urgent priority for households.

RATE SQUEEZE

Mortgage Rates 6.71%

Credit Card APR  23.98%

New Car Loan 6.58%

Used Car Loan 11.17%  

Source: Freddie Mac, Lending Tree, MarketWatch Guide 

Consumers are seeing some relief. Inflation, which had spiked to 9.1%, fell down to 4% in the Consumer Price Index’s May report, on an annual basis. 

94% of market participants expect the Fed to pause, as tracked by the CME’s- FedWatch Tool, when policymakers will announce their decision at 2pm on Wednesday. Chairman Jay Powell’s press conference will follow where investors will listen for any clue about whether the likely pause is a one-off or a holding pattern. 

“That ‘pause’ may turn out to be short-lived however, with the Fed only skipping a rate hike this month but resuming in July” McBride added.