The Federal Reserve opted to maintain the federal funds rate steady within the 4.25% to 4.50% band during its June 17-18 gathering, marking no adjustment to interest rates this session.
This move represents the fourth straight pause, signaling stability despite mounting pressure from the White House urging for significant rate cuts.
Inflation and Tariff Worries Keep the Fed Cautious
At the heart of the Fed’s hesitation lies inflation, which inched upward in May as per the Consumer Price Index’s freshest snapshot. Coupled with lingering ambiguity around President Trump’s tariff blueprint — a wildcard threatening to push costs even higher — the central bank has chosen to adopt a wait-and-watch stance before altering its course.
Greg McBride, CFA and chief financial analyst at Bankrate, notes, “Although inflation indicators have edged closer to the 2% goal, the Fed remains sidelined due to tariff uncertainties.” He underscores that inflation isn’t the sole factor, citing emerging strains in the labor market that compel the Fed to juggle its dual mandate of price stability and maximum employment.
The Winners and Losers Unveiled
1. Borrowers
For those who locked in loans — like 30-year fixed mortgages secured back in 2021 or 2022 — it’s business as usual with no changes on the horizon. Given the elevated interest rates, prospective borrowers might find it challenging to tap new credit sources. For instance, credit card interest rates hovered around 12.65% as of June 11, per Bankrate’s recent survey, with the Fed’s action unlikely to exert downward pressure anytime soon.
Back in 2021, with borrowing costs near zero, average credit rates were substantially lower at 9.38%. Meanwhile, borrowers juggling floating-rate debt face no respite either. Adjustable-rate mortgages initiated in previous years could now reset at these higher levels, nudging monthly payments upward.
2. Credit Card Holders
The bulk of variable-rate credit cards adjust in line with the prime rate — a figure closely tied to the federal funds rate. Following a series of sharp Fed hikes, these interest rates surged to multi-decade highs. Now, as the Fed hits pause, variable credit card rates are expected to stay flat for the moment.
McBride advises, “With average credit card APRs still north of 20%, consumers should aggressively chip away at balances, leveraging 0% or low-rate balance transfer offers to accelerate debt reduction. Waiting around for lower rates isn’t a winning strategy.”
Of course, if you’re not carrying a revolving balance, credit card rates pose little concern.
3. Mortgage Borrowers
Mortgage rates tend to shadow the trends in the 10-year Treasury yield, both influenced by similar economic factors. As the 10-year Treasury yield has generally declined through much of 2024, mortgage interest rates followed suit.
Currently, mortgage rates linger near 7%, and a genuine, sustained drop in inflation would be necessary to push them lower in a meaningful way. McBride explains, “A mere Fed rate cut won’t suffice, given growing anxieties over swelling government debt.”
This scenario — combined with housing prices skyrocketing over recent years — creates a double barrier for would-be homeowners: pricier homes and steeper borrowing costs, which together have dampened demand in the housing market.
The expense tied to home equity lines of credit (HELOCs) is expected to hold steady, as HELOC rates usually track federal funds rate fluctuations.
4. Investors in Stocks and Bonds
The Fed’s standstill isn’t exactly a boon for equities. Historically, low-interest rates pep up stock valuations by making shares more enticing compared to bonds and other fixed-income instruments like CDs. When rates drop, bond prices generally climb — but inflation gnaws at their real returns.
“Inflation chips away at the purchasing power of bond payouts, triggering yield hikes that depress bond prices,” McBride points out.
For investors seeking short-term safety nets, short-duration bonds remain appealing while market conditions stabilize. McBride cautions: “Align your bond maturities with your investment timeline, as unexpected yield spikes can erode bond prices if you need to liquidate early.”
Interestingly, even without Fed cuts, many investment yields have softened slightly but remain competitively attractive, especially on savings accounts, money market funds, and CDs — provided you hunt for the best rates.
According to McBride, “Savers can still beat inflation, but it requires actively chasing top-yielding products because many banks persist with rates well below 1%, which isn’t ideal for growing your nest egg.”
5. Certificates of Deposit (CDs)
Account holders with recently opened CDs benefit from the Fed’s pause, as rates stay put without the downward pressure that would accompany rate cuts.
6. The U.S. Federal Government
Federal borrowing currently exceeds $36 trillion, and this rate hold doesn’t ease the government’s short-term debt servicing costs as it refinances maturing obligations at today’s steep rates.
While a long-term, secular decline in interest rates has historically favored the government — allowing it to borrow cheaply over decades — the current landscape is less forgiving. When inflation outpaced interest rates, the government effectively repaid older debts with devalued dollars. Now, with rates surpassing inflation, it’s on the hook for costlier repayments.
The 10-year Treasury yield has dipped in recent months, though the day after Donald Trump clinched the 2024 presidential nomination, longer-term yields surged abruptly, reflecting market jitters.
Summary Table: Fed Decision Impact at a Glance
| Borrowers | No immediate relief on borrowing costs; adjustable loans reset higher. | Holding steady benefits only those with locked-in lower rates. |
| Credit Card Holders | Variable rates remain elevated; no drop expected. | Prioritize paying down balances; don’t wait for relief. |
| Mortgage Borrowers | Rates near 7%; no significant decline without inflation easing. | Higher costs and pricey homes cool housing demand. |
| Stock & Bond Investors | Stocks lack boost; bond yields remain volatile. | Match bond investments with timelines to avoid losses. |
| Savers/CD Holders | Returns stay attractive but vary widely by bank. | Seek out top-yielding savings and CDs actively. |
| Federal Government | Borrowing costs remain high; refinancing expensive. | Long-term rate trends less favorable than before. |