Newsletter
Key Points:
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The Fed held interest rates steady at its latest meeting in January.
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As of February 2024, the federal funds rate is 5.33%.
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Higher rates make it more expensive to finance purchases, especially big-ticket items like a home or vehicle.
The Federal Reserve has been pushing interest rates higher for almost two years. At its most recent meeting, the Fed decided to keep interest rates steady for now. In addition to the Federal Reserve rate decision to hold rates steady, Chairman Powell indicated that rate cuts won’t be coming in March.
We will explore the details of the Fed’s decision and how this might impact your finances.
Federal Reserve Holds Interest Rates Steady
At the latest meeting, the Federal Reserve chose to hold rates steady. Not only are interest rates staying the same for now, but Chair Jerome Powell doesn’t foresee interest rates coming down at the next meeting in the next Fed decision in March.
The goal of keeping interest rates high is to put downward pressure on inflation. The Fed has a stated goal of keeping inflation at the 2% mark. Inflation is down from the high water mark of almost 9% in mid-2022. But the Consumer Price Index, a common measure of inflation, measured inflation at 3.4% for December 2023, which is still above the target of 2%.
The Fed is unlikely to lower interest rates until it is confident that the inflation rate is at the target.
How Higher Interest Rates Impact You
Steadily increasing interest rates since March 2022 have put pressure on consumers. With interest rates rising across the board, it’s more expensive to finance any purchases.
Here’s a look at how higher interest rates might be impacting you:
- Credit card balances are more expensive: If you are carrying a balance on your credit card, rising interest rates are piling on the interest charges.
- Prospective homeowners feel the pinch: Higher mortgage interest rates mean you’ll spend more money each month on interest charges. With that, it can be more difficult to purchase the home you have in mind.
- Savings interest rates climb: It’s not all bad news. If you have savings on hand, higher interest rates allow your money to work harder for you. For example, some high-yield savings accounts are offering APYs above 5%!
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While you can earn more interest on your savings, you’ll also face higher interest costs if you want to borrow funds. Unfortunately, higher rates can pinch your budget for big purchases, like a home or vehicle.
Federal Reserve Decision and How to Navigate This Interest Rate Environment if Home Shopping
Higher interest rates are impacting everyone. But the high interest rate environment is especially challenging for anyone looking to buy a home. Since a home is one of the largest purchases most of us ever make, it’s not surprising that higher interest rates can significantly impact your home shopping experience.
If you are looking to buy a home, it’s essential to shop around for the best rates you can find. Every lender offers slightly different mortgage rates, which can have a big impact on your budget. Take the time to compare rates across multiple mortgage lenders to find the lowest rates for your unique situation.
- Protect your rate while you home shop—Lock & Shop
- Fast pre approval letter with rate lock protection
In addition to shopping around for low rates, you might need to reevaluate your home purchase budget. Make sure to choose a price point that accommodates your long-term financial goals.
If you find that interest rates are too high for your situation, consider working on your credit score. Lenders often offer the best interest rates to borrowers with the highest credit scores. Consider boosting your credit score by committing to on-time payments and paying off credit card debt. As your credit score rises, you might find more favorable interest rates for your home purchase.
The Bottom Line
Higher interest rates are impacting borrowers of all kinds. But the high interest rates are putting the most pressure on home shoppers. If you are in the market for a home, compare mortgage rates to avoid unnecessarily high interest charges.
Article Topics
Mortgage Loans
Sarah Sharkey is a personal finance writer with a Master's in Management from the Hough School of Business at the University of Florida. She enjoys helping people make better financial decisions and has written for numerous personal finance publications, including Money Under 30, Business Insider, and The College Investor. Sarah enjoys traveling, hiking, and reading when she is not writing.
