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Federal Reserve Holds Interest Rates Steady: What That Means for Mortgages, Credit Cards, Loans

Elite Personal Finance
Last Update: March 22, 2025 • Financial News •

On March 19th, the Federal Reserve decided to hold interest rates unchanged at 4.5%

Even with ongoing headwinds caused by an escalating trade dispute between the United States, Mexico, and Canada, as well as uncertainties around economic growth, rates have remained the same for now.

“Uncertainty around the economic outlook has increased,” said the Federal Reserve in a March 19th announcement. “The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee’s goals.”

With this latest ruling, the Federal Reserve continues its path toward keeping rates steady. Rates have been anywhere from 4.25% to 4.5% since December 2024, with the last decision made in January. At the same time, mortgage rates have steadily remained in the 6% range after picking up about 7% in January.

In a report, Stephen Brown, Capital Economics deputy chief North American economist, remarked, “Acknowledging the likely direction of travel in terms of policy from the Trump administration, FOMC participants revised up their projections for inflation while revising down their projections for GDP.”

“What holds the FOMC back from continuing to push interest rates lower at this moment is uncertainty about the Trump administration’s economic policies,” added Carl Weinberg, chief economist at High-Frequency Economics” in a research note.

Currently, the Federal Reserve is invested heavily in reviewing all of the Trump administration’s latest changes to fiscal policy to direct rate policy. All your consumers saw consumer borrowing costs increase in 2022 and 2023. Even with the Lord Benchmark rate towards the end of 2024, rates across different lines of credit, seeing a slight increase from all-time highs. Credit cards also hold variable rates, meaning they can fall or rise depending on Federal Reserve decisions.

Does the Federal Reserve Control Mortgage Rates?

Although the Federal Reserve plays an instrumental role in setting short-term interest rates, long-term bond yields hold more sway over mortgage rates. The 30-year fixed mortgage rate is tied to the 10-year treasury bond yield, with mortgage rates increasing when bond yields rise versus decreasing when bond yields fall. Like the Federal Reserve’s short-term rate direction, yours also moves based on macroeconomic conditions and short and long-term outlooks.

What Influences Bond Yields and Mortgage Rates?

Several factors influence bond yields and mortgage rates, including economic growth expectations, inflation trends, government deficits/debt, and Federal Reserve policy expectations. With a rapidly growing economy comes higher demand for bond yields, bumping up mortgage rates.

High inflation diminishes the return on bonds, resulting in higher interest rates. Along the same line, inflation cooldowns cause bonds to drop, resulting in lower mortgage rates.

The third item, government deficits, and depth play a factor when the government borrows heavily and falls into even more depth, competing with private borrowers to drive up the cost of bond yields. Likewise, when deficits shrink, there’s less need for borrowing, which results in lower bond yields and lower mortgage rates over time.

What About Auto Loans?

The combination of increasing vehicle pricing, partly due to the threat of tariffs, has already increased auto loan rates. As of March 14th, the average rate on a 5-year new vehicle loan is 7.2% versus 11.3% for used vehicles (Edmunds).

With the Federal Reserve’s latest decision to keep interest rates at 4.5%, borrowing costs for auto loans should remain at the same level. However, keep in mind that these are also fixed-rate products that bond yields Drive, not just federal policy. Credit cards or home equity lines are more reactive to Federal Reserve decisions and auto loans since they are tied to variable interest rates. However, the costlier the capital is, the higher the rates auto lenders can charge, which affects borrowers directly.

Not to mention the increasing likelihood of tariffs, which could drive vehicle prices even higher, placing a lot of pressure on credit to low-credit consumers who already see Sharp rate increases; we do not see intermediate relief for car buyers in the near term.

Why Are Interest Rates Important?

The Federal Reserve’s decisions on whether or not to hike, keep, study, or decrease rates have tremendous sway over consumer borrowing power. When central banks adjust their Benchmark rates, it affects everything from credit card APRs to savings account interest rates. Naturally, the lower the federal funds rate, the lower a consumer’s borrowing costs.

For example, according to bank rates, the average credit card interest rate has dropped to 20.09% from the record high of 20.79% set in August 2024 (Bankrate).

How to Plan Your Finances In Light of the Announcement

All these uncertain comments are essential to employing strategic financial planning.

For starters, we recommend that you review and adjust your household budget in light of higher interest costs. For example, credit card APRs average in the 20% range, and 11% for used vehicle auto loans, meaning a $5,000 credit card balance will have you paying $1,000 a year in Interest. Manage your budget by cutting discretionary spending and creating a buffer budget to prepare for any uncertainty around increased tariffs that could raise the cost of living, especially with imported goods.

Secondarily, you want to prioritize variable proper and high-interest depth. Ways to do it include using the Avalanche Master to where you’re paying off the highest interest first, exploring balance transfer credit cards with 0% APR for an introductory (better for those with high credit scores), and consolidating debts using a fixed rate personal loan.

You may also consider prioritizing building or replenishing your emergency fund. If GDP growth slows or tariffs hit the United States hard, aim for 3 to 6 months’ worth of rainy-day money in a high-yield savings account. For dual-income households, 3 months may be fine, but for single-income households or those employed in high-volatility Fields like tech and import/export jobs, consider more than 6 months.

As a protest, you may also want to look into high-yield savings accounts or money market accounts, where you can earn roughly 4% APY. These accounts allow you to earn money on Interest while maintaining liquidity.

The Federal Reserve’s recent decision to keep rates steady does not offer an excuse to keep your monthly budgeting strong by adjusting household budgets wherever applicable, prioritizing that repayment, and replenishing your emergency fund.

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