The next interest rate decision may affect your financial situation beyond your imagination

If you try to fund your car, take out your home loan or pay off your credit card debt, you may notice that the borrowing costs are still expensive. Many of us hope to get cheaper credit in 2025 after the Fed cuts interest rates three times last year.

But interest rates are unlikely to be avoided anytime soon.

The U.S. Central Bank meets eight times a year to assess the health of the economy and formulate monetary policies, mainly through changes in federal funds rates, the benchmark interest rate used by Bank of America to lend or borrow money overnight. At the upcoming May 6-7 meeting, the Federal Reserve will leave lending rates alone for the third time.

Fed Chairman Jerome Powell has been firmly monitoring labor market conditions and inflationary pressures before any cuts are made. Despite the pressure on lower interest rates, the impact of the Trump administration’s economic agenda, such as tariffs and government cuts, has been too great.

Meanwhile, American households are curbing spending due to concerns about the recession. Economists fear tariffs will release more inflationary pressures. Investors are cutting losses in the stock market. People have a wide focus on employment, taxes, prices, social programs and almost everything that affects our financial livelihoods.

Even if the Fed keeps interest rates stable next week, its tone and messaging have a huge impact on the market. Any talk about risk or uncertainty can scare investors and cause a ripple effect in the economy.

What influences the Fed’s decision?

Financial experts and market observers have taken the time to predict whether the Fed will raise or lower interest rates based on official economic data, with a special focus on inflation and the job market. That’s because the Fed’s official “authorization” is to balance price stability with the highest employment.

“The Fed’s monetary policy will depend on which side of inflation or employment is the farthest target,” said Matthew Martin, senior economist at Oxford Economics.

Some economists expect the Fed to keep the scenario until the end of the year, while others expect tax rates to be lowered this summer.

Typically, when inflation is high and the economy is getting higher, just like in early 2022, the Fed raised its benchmark interest rate to stop borrowing and reduce the money supply. When unemployment is high and the economy is weak, the Fed lowers its benchmark rate, allowing banks to relieve financial pressure on consumers and make buying large items cheaper through financing and credit.

You may hear the term “soft landing”, which refers to the Fed’s balancing behavior. According to those who run the market, the economy shouldn’t be too hot or too cold – it should be as correct as Goldlocks’ porridge.

Is there no risk of a recession?

There are many warning signs of a downturn – weak GDP, decline in consumer confidence, and increased layoffs. Even if a technological recession has not been called yet, economic activity will slow sharply over the coming months.

The biggest wildcard to the economy is tariffs. Tariffs increase the cost of goods for domestic importers, then the price is higher, and then transferred to consumers.

“Tariffs bring complex situations to the Fed as they suggest rising risks to inflation – but downside risks to growth and labor markets,” said Gisela Young, an American economist at Citigroup.

If inflation rises, the Fed will make interest rates higher. But if higher tariffs combined with shrinking and cost cuts lead to a severe contraction of the economy, the Fed could lower the rate of stimulating growth.

Either way there are risks.

“If officials act too late, they have the potential to become the ‘behind the curve’ and [causing] Martin said it was a more serious recession. But if they lower interest rates too early, they may risk higher and sticky inflation, and economic growth (called stagnation) is probably the worst in both worlds. ”

How does interest rate changes affect you?

The Fed’s decision on interest rates affects how much income we make from our savings accounts, how much we owe debts and whether we are burdened with monthly mortgages.

Imagine financial institutions and banks forming an orchestra, and the Fed is the conductor, guiding the market and controlling the money supply. Although the Fed has no direct control over the percentage we owe on credit cards and mortgages, its policies have a domino effect on everyday consumers.

Interest is the fee you pay for borrowing money, whether through a loan or a credit card. When central banks “masters” raise interest rates, many banks tend to follow. This may make our debts more expensive (credit card APR 22% vs 17%), but can also lead to higher savings output (APY 5% and 2%).

When the Fed lowers interest rates, banks also tend to lower interest rates. Cheap borrowing costs encourage investment and reduce the debt’s returns, but our savings yield is high.

While market observers and economists often have different views on the Fed’s monetary decisions, experts still expect tax rates to be lowered twice in 2025, although market observers and economists usually have different views. The speed at which interest rates will be reduced will depend on the job market, inflationary pressures, and other political and financial developments.

This is the decision next week about the meaning of credit card APR, mortgage interest rates and savings rates.

🏦 Credit Card APR

Keeping federal funds rate stable may cause credit card issuers to maintain an annual percentage of outstanding balances per month. Some credit card APR dropped slightly after the Fed lowered tax rates last year, but it was still high. However, every issuer has different rules regarding changing APR. To avoid accumulating high interest debt, try repaying the balance in full, or at least paying monthly exceeds the minimum payment.

– Tiffany Connors, CNET Currency Editor

🏦Margin loan interest rate

The Fed’s decision will affect the overall borrowing costs and financial situation, which will affect the housing market and home loan rates, although this is not a one-to-one relationship. Even if the Fed keeps interest rates stable, mortgage rates will fluctuate with new economic data, which will affect bond markets and long-term fiscal yields. This will require a massive economic downturn, protracted debt declines and a series of lower mortgage rates.

– Katherine Watt, CNET Money Housing Reporter

🏦Save rate

Savings rates are variable and locked with federal funds rates, so your annual percentage may drop after lowering your tax rates later this year. Although each bank sets different interest rates, at least for the time being, we may not see a significant drop in high-yield savings accounts or deposit certificates. This can maximize the time of income by locking in high CD rates or leveraging high savings rates when they are still present.

– Kelly Ernst, CNET Currency Editor