The Federal Reserve Open Market Committee (Fed) ended its September meeting without increasing the federal funds rate but made clear its battle with inflation isn’t over.
“We want to see convincing evidence really that we have reached the appropriate level, and we’re seeing progress and we welcome that. But, you know, we need to see more progress before we’ll be willing to reach that conclusion,” said Fed Chairman Jerome Powell.
Other statements and documents suggest that even if the Fed doesn’t raise rates one more time, as expected, the policymakers plan to keep the rate where it is for months, making it more expensive to finance a car or truck purchase and pay down credit card balances.
Oliver Rust, head of product at independent inflation data aggregator Truflation, says the Fed’s decision shows it is being cautious.
“Overall, the economic picture remains murky, which explains the decision to pause,” Rust told ConsumerAffairs. “According to Powell, the Fed is now ‘in a position to be more careful’ and getting ‘fairly close’ to where it needs to be on interest rates. Faced with arguably the most important monetary policy decision since the rate hiking cycle began, this pause gives policymakers the chance to avoid a blunder, with Powell saying that achieving a soft landing still remains the Fed's primary objective.”
A soft landing would be a reduction in inflation without triggering a recession – historically, something hard to achieve.
“However, with the economy on a strong path and unemployment stuck at historic lows, there is little chance of avoiding another interest rate hike,” Rust said. “At Truflation, we also expect inflation to remain sticky this year and maintain our projection of 4% CPI by year-end, which will put further pressure on the Fed.”
With new and used car prices expected to rise because of the United Auto Workers strike, higher financing rates may limit the kind of vehicles consumers can afford. Current rates range from 5.5% to over 28%.
The average credit card interest rate is 24.45%, with consumers with excellent credit paying less but those with poor credit paying a much higher rate. Both auto loan rates and credit card rates are based on the Fed’s federal funds rate.