Fed policymakers will once again lower interest rates. You can blame the tariffs

As expected, there is no reassurance for today's interest rates. You can blame the tariffs.

At the end of today's meeting from May 6 to 7, the Federal Reserve voted to keep interest rates stable for the third time in a row.

Fed Chairman Jerome Powell has been firmly monitoring labor market conditions and inflationary pressures before any cuts are made. Despite the pressure from the White House to lower borrowing rates, the uncertainty about the economic outlook is too great. ”

Nevertheless, the Fed pointed out “the risk of higher unemployment and higher inflation.” Economists are increasingly worried that the Trump administration's tariffs will release a double blow from higher consumer prices and slowing demand. U.S. households are already curbing spending due to concerns about a recession, while investors are cutting losses in the stock market.

Even though the Fed lowered three times last year, it is still expensive to raise money for cars, take out home loans and pay off credit card debt. While some experts still expect borrowing costs to eventually drop in 2025, the rate of lowering interest rates will depend on the job market, inflationary pressures, and other political and financial developments.

Is the Fed's holding rate stable?

The U.S. Central Bank meets eight times a year to assess the health of the economy and to make monetary policies overnight by changing the federal funding rate, the benchmark rate used by Bank of America to borrow or borrow money. Its official “task” is to balance price stability with maximum employment.

Financial experts and market observers predict whether the Fed will raise or lower interest rates based on official economic data, with special attention to inflation and the job market. At the bottom, the Fed kept interest rates high to monitor how the Trump administration affects tariffs and other measures over time on these key indicators.

Matthew Martin, senior economist at Oxford economics, said the Fed's monetary policy depends on which party it authorizes, inflation or employment.

Some economists want the Fed to remain “wait and see” off the market until the second half of the year, while others are expected to slow down 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.

The phrase “soft landing” 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.

What about the recession and tariff risks?

Warning signs of economic downturn: weakening GDP, falling consumer confidence, and increasing layoffs. Even if a technological recession has not been called, the market expects a sharp slowdown in economic activity in 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 longer. 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. ”

Even if the Fed holds interest rates, its tone and messaging can have a huge impact on the market. Any discussion of risk or uncertainty can always scare investors and cause a ripple effect in the economy. No wonder there is a widespread focus on employment, taxes, prices, social planning, and almost everything that affects our financial livelihoods.

How do interest rate changes affect your financial situation?

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.

Whether through a loan or a credit card, interest is the fee you pay for borrowing money. 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.

Ultimately, 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 mortgage payments. This is what the suspension of fees for credit card APR, mortgage rates and savings rates means.

🏦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

🏦 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