WASHINGTON — Consumer interest rates now look to remain stable — though at their highest levels in years — headed into the holiday season, as the Federal Reserve said Wednesday it would not increase its target interest rates.
For consumers, the Fed sticking with the status quo could mean that the surge in rates that began in March 2022 could be over.
That’s likely to mean a holiday season with little relief from high borrowing costs. Mortgage rates have been going up and are almost near their expected peak and credit card rates remain high.
“Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain,” the Fed said in a statement.
Officials also hinted that rates could go up in the future, as the Fed’s goal of having a 2% rate of inflation is still elusive.
“The Committee is strongly committed to returning inflation to its 2% objective.,” the statement said.
Some economists saw a continued pause in rate increases and perhaps even lower rates ahead.
“There is a good chance that the Federal Reserve is done raising the interest rate. This means interest rates are near their peak,” said Sung Won Sohn, president of SS Economics in Los Angeles.
“People looking to buy big ticket items could wait expecting lower interest rates in 2024. On the other hand, shoppers’ mood could be buoyed by the expectation that the worst in the interest cycle is behind us.”
Signs are that consumers will be wary for a while. The consumer confidence index, a historic predictor of consumer activity, dropped in September for the second straight month.
The index, compiled by the New York-based Conference Board, showed concern about inflation as well as the political situation and higher interest rates, and Dana Peterson, the research group’s chief economist.
The drop was across all age groups, but particularly apparent among consumers with household incomes of $50,000 or more.
Will price increases slow?
Prices are stabilizing, rising 3.7% in the 12 months that ended in September, the federal Bureau of Labor Statistics said, well below the 9.1% peak of June 2022.
In California, the estimated increase this year is 4.1%, according to the UCLA Anderson economic forecast, and the rate is projected to be 3.2% in 2024.
The Fed has increased rates 11 times since the start of last year, aiming to reduce the rate of inflation to 2%. The costlier the interest, the thinking goes, the less people spend, providing less incentive for sellers to raise prices.
While the Fed’s inflation target is proving elusive, the UCLA forecast sees some modest reductions in interest rates next year, as the economy slows somewhat.
Will mortgage rates stabilize?
The pause in the Fed interest rate increases is unlikely to help homebuyers. Freddie Mac, which tracks mortgage rates nationally, found that the average 30-year, fixed-rate mortgage loan was 7.79% last week. The rate has gone up for seven consecutive weeks.
In California, the rise in rates means “home sales are being tested and are likely to remain tepid for the next few months,” said Jordan Levine, California Association of Realtors senior vice president and chief economist in a statement.
“With the Fed planning on holding rates higher for longer, the cost of borrowing will remain elevated and may not come down much in the near term,” he said. “Housing affordability will continue to hinder sales activity for the rest of the year, especially in the low- and mid-price ranges.”
Will credit card rates stay high?
“Credit card rates are likely to remain pretty stable for the rest of the year. They might tick up a bit, but unless the Fed delivers a surprise rate hike, rates aren’t likely to change much before the end of the year,” said Matt Schulz, chief credit analyst for LendingTree, which tracks interest rates.
That’s not necessarily great news for consumers. Even if the rates don’t go up anymore this year, “It’s been a brutal 18 months for folks with credit card debt, and the holidays are likely to be that way, too,” Schulz said.
For instance, store credit cards, which have traditionally had higher interest rates than other sorts of cards, are “as high as they’ve ever been,” he said. Rates of 29.99% or higher are common, levels that were once reserved for people who paid late or had bad credit.