The Federal Reserve is expected to hold its key interest rate steady on Wednesday, but US households will listen for clues about whether rate cuts are on the horizon, which could have meaningful implications for their monthly budgets and influence major purchasing decisions.

The central bank has raised its benchmark interest rate to a range of 5.25 to 5.50 percent, the highest level in more than two decades, in a series of hikes over the past two years. The aim was to curb inflation, which has cooled significantly from a peak of 9.1 percent in 2022.

Fed officials have kept rates unchanged since July as they continue to monitor the economy. And with inflation still somewhat stubborn – price increases have been hovering around 3.2 percent for five months now – policymakers are unlikely to cut rates too quickly.

Still, several banks have already begun to anticipate possible cuts by lowering the rates they pay to consumers, including on some certificates of deposit.

Here’s a look at how different interest rates are affected by the Fed’s decisions – and where they stand.

Credit cards

Credit card rates are closely tied to central bank actions, meaning consumers with revolving debt have seen these rates rise rapidly in recent years. Increases usually occur within one or two billing cycles, but don’t expect them to drop that quickly.

“The urgency to pay off expensive credit card or other debt is not easing,” said Greg McBride, chief financial analyst at Bankrate.com. “Interest rates went up on the elevator, but they are going down on the stairs.”

That means consumers should prioritize repaying debts with higher costs and take advantage of zero percent and low interest rate offers when they can.

According to the Federal Reserve, the average interest rate on fixed-rate credit cards at the end of 2023 was 22.75 percent, up from 20.40 percent in 2022 and 16.17 percent at the end of March 2022, when the Fed began its series of rate hikes.

Car loans

Interest rates on car loans remain high, which, in combination with higher car prices, continues to put pressure on affordability. But that hasn’t deterred buyers, many of whom have returned to the market after postponing their purchases for several years due to supplies being tight during the Covid-19 pandemic and later Russia’s invasion of Ukraine.

The market is likely to normalize this year: the inventory of new vehicles is expected to increase, which could help lower prices and lead to better deals.

“Tips from the Fed that they have achieved their rate hike targets could be a sign that rates could be cut sometime in 2024,” said Joseph Yoon, a consumer insights analyst at Edmunds, an auto research firm. “Inventory improvements for manufacturers mean shoppers will have more choice, and dealers will need to earn sales from their customers, potentially with stronger discounts and incentives.”

According to Edmunds, the average interest rate on new car loans in February was 7.1 percent, up slightly from 7 percent the month before and in February 2023. Used car rates were even higher, with the average loan having a interest rate of 11.9 percent. 2024, compared to 11.3 percent in the same month of 2023.

Auto loans typically track the five-year Treasury yield, which is influenced by the Fed’s policy rate — but that’s not the only factor that determines how much you pay. A borrower’s credit history, vehicle type, loan term and down payment are all factored into the rate calculation.

Falling rates would lower credit card rates, but rates are unlikely to fall as quickly as they have risen.Credit…Maansi Srivastava/The New York Times

Mortgages

Mortgage rates have been volatile in 2023, with the average 30-year mortgage rate rising to 7.79 percent at the end of October before falling about a point lower and stabilizing: the average 30-year mortgage rate as of March 14 was 6.74 percent. according to Freddie Mac, compared to 6.6 percent the same week last year.

“Mortgage rates remain high as the market grapples with the pressures of persistent inflation,” Sam Khater, Freddie Mac’s chief economist, said in a statement last week. “In this environment, there is a good chance that rates will remain higher for an extended period of time.”

Yields on 30-year fixed-rate mortgages do not move with the Fed’s benchmark, but instead generally track yields on 10-year Treasury bonds, which are influenced by a variety of factors, including expectations about inflation, the Fed’s inflation expectations actions and how investors react.

Other home loans are more closely linked to central bank decisions. Home equity lines of credit and adjustable-rate mortgages — each of which has a variable interest rate — generally increase within two billing cycles after a change in Fed interest rates. According to Bankrate.com, the average interest rate on a home equity loan as of March 13 was 8.66 percent, while the average home equity line of credit was 8.98 percent.

Student grants

Borrowers who have federal student loans are not affected by the Fed’s actions because such debt carries a fixed interest rate set by the government.

But every July, new federal student loans are priced based on the May auction of 10-year Treasury notes. And those interest rates have risen: Borrowers with federal student loans disbursed after July 1, 2023 (and before July 1, 2024) will pay 5.5 percent, compared to 4.99 percent for loans disbursed during the same period a year earlier. Just three years ago, interest rates were below 3 percent.

Graduate students who take out federal loans will also pay about half a point more than the rate a year earlier, or an average of about 7.05 percent, as will parents, up from an average of 8.05 percent.

Borrowers of private student loans have already seen interest rates rise due to previous rate hikes: both fixed and variable rate loans are tied to benchmarks that track the federal funds rate.

Economy vehicles

While the Fed’s benchmark interest rate has remained unchanged, several online banks have begun to roll back the rates they pay to consumers.

With interest rates likely to have peaked and could eventually head lower, several online banks have already cut rates on certificates of deposit several times this year, which often have the same maturity as government bonds of a similar date. For example, online banks including Ally, Discover and Synchrony all recently cut rates on their twelve-monthly CDs to below 5 percent. Marcus now pays 5.05 percent, down from 5.50 percent, while Barclays cuts its rate from 5.3 percent to 5 percent.

“CD rates are already falling, and as we get closer to the first rate cut, they will only continue to fall,” said Ken Tumin, founder of DepositAccounts.com, part of LendingTree.

The average one-year CD at online banks was 5.02 percent as of March 1, lower than the peak yield of 5.35 percent in January but higher than 4.56 percent a year earlier, according to DepositAccounts.com.

The average return on an online savings account was 4.44 percent as of March 1, only slightly down from a peak of 4.49 percent in January, according to DepositAccounts.com, and up from 3.52 percent a year ago. But the returns on money market funds offered by brokerage firms are even more attractive because they have more closely tracked the federal funds rate. The return on the Crane 100 Money Fund Index, which tracks the largest money market funds, was 5.14 percent on March 19.

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