June’s Fed meeting came and went without any change in the Federal funds rate. The decision reflects a growing problem: the economic indicators the Fed relies on are increasingly pointing in opposite directions.

Slowing economic growth and rising unemployment typically call for lower rates, but renewed inflation concerns are pulling the other way. This tug-of-war is leaving 2025 interest rates in limbo.

The Fed expects economic signals to move further apart

After the Federal Open Market Committee met on June 17 and 18, it released updated projections showing greater conflict between key economic indicators.

On one side, the Fed lowered its expectations for GDP growth and raised its unemployment forecast. That indicates it expects the economy to weaken more than previously thought.

At the same time, it raised projections for inflation in 2025 and the two years that follow. That means it sees price pressures remaining higher than hoped.

The Fed tries to balance two main goals: encouraging employment and limiting inflation. Lower interest rates can support job growth, while higher rates are often used to control inflation. Because those two responses are at odds with each other, tension between the Fed’s goals is not new. But now that tension appears to be growing.

Interest rates remain unchanged

At the end of its June meeting, the Fed announced it was holding the Federal funds rate steady at a target range of 4.25% to 4.5%.

This decision disappointed some, including President Trump, who has repeatedly called for cuts. However, Fed Chair Jerome Powell does not act alone. The rate-setting committee voted unanimously to leave rates unchanged, reflecting broad agreement that the economic situation does not support a move right now.

As recently as September, the Fed expected to lower rates to 3.4% by the end of this year. Instead, its latest projection shows a year-end rate of 3.9%, which is half a percentage point higher. It has also raised its rate expectations for 2026 and 2027.

Inflation uncertainty continues to weigh heavily on rate decisions. The Fed is not raising rates at this point, but it does not believe conditions justify lowering them either.

Inflation concerns have not gone away

One reason the Fed is drawing criticism for holding off on rate cuts is that inflation has remained relatively calm in recent months. Inflation remained calm with modest monthly price increases through much of 2024.

However, the Fed bases its decisions on where the economy is going, not just where it is now. Tariffs that have been announced are not yet fully reflected in prices. There are delays between when tariffs take effect and when their impact reaches consumers. Retailers often have existing stock to sell through first.

On top of that, ongoing conflict in the Middle East creates the possibility of rising oil prices, which can drive up costs across many sectors.

The Fed also considers how inflation can build on itself. Higher import prices can lead to domestic price increases. Companies may raise prices due to rising input costs, and employees may push for higher wages in response. This feedback loop can create lasting inflation that is harder to reverse.

To provide some perspective, the current rate is lower than the historical average. Over the past 50 years, the Federal funds rate has averaged 4.69%. Today, it sits at 4.33%.

Since August of last year, the Fed has lowered rates by a full percentage point, from 5.33% to 4.33%. So while it has not made deep or frequent cuts in 2025, it has already moved rates below the long-term norm.

The criticism is not that the Fed has done nothing. It is that it has not gone as far as some would prefer.

Consumer interest rates often move independently

From a consumer perspective, the Fed’s decisions may not matter as much as headlines suggest. Even when the Fed does cut rates, the impact on what consumers actually pay can be small.

For example, between mid-2019 and early 2020, the Fed cut rates by 2.25%. During that same period, the average interest rate on credit card balances dropped by only 0.53%.

In the second half of last year, the Fed cut rates by 1.0%, but 30-year mortgage rates fell by just 0.01%.

That is because consumer rates do not track the Federal funds rate exactly. Both are influenced by broader market factors, including credit risk and inflation expectations.

As the economy slows, lenders tend to raise rates to account for higher risk, especially on unsecured debt like credit cards. For borrowers with lower credit scores, those increases can be even steeper. Credit conditions may tighten, making it more difficult or expensive for some consumers to access credit at all.

Meanwhile, long-term mortgage rates are often more sensitive to inflation expectations than to short-term interest rate moves.

Broader changes are needed for real consumer relief

The Fed’s projections suggest that concerns about inflation are growing while the economic outlook is weakening. That is a difficult environment for lowering interest rates.

To see meaningful improvement in borrowing costs, several things would need to happen. A stronger economy could reduce credit risk. A shift in trade policy or global tensions could ease inflation pressure.

Until those conditions change, the Fed may have limited ability to affect consumer borrowing costs. The bigger issue is not whether the Fed chooses to cut rates. It is whether the economy provides the conditions that allow those cuts to make a difference.

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Consumer inflation slows to 0.1% in May 2025

The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose by just 0.1% in May. That’s less than April’s 0.2% rise, and projects to a slower annual pace of inflation than the 2.4% rise in the CPI over the past 12 months. The core inflation rate, which excludes food and energy, was also 0.1% for May. The core rate is a little higher than the overall rate for the past 12 months, at 2.8%. The overall rate was kept lower by a 12% drop in the price of gasoline over the past year. See news release at BLS.gov.

Producer prices edge higher after two-month decline

The Producer Price Index (PPI) rose by 0.1% in May. Though that’s a mild increase, it represents a rise in the pace of producer inflation after the PPI declined in each of the two previous months. Prices for both goods and services both rose at the same 0.1% rate in May. Producer prices tend to vary more month-to-month than consumer prices, but eventually inflationary trends in producer prices tend to filter through to consumers. See news release at BLS.gov.

Tariff concerns lead businesses to pause spending and hiring

A survey by Provident Bank found that 70% of US business owners are “very” or “moderately” concerned about the impact of tariffs on their businesses. 42% said they plan to delay major capital spending, and 30% said they have stopped hiring. Overall, 55% of US business owners feel tariffs will hurt the economy. Despite all these concerns, 60% of business owners believe the economy will grow over the next six months. See article at BankingJournal.ABA.com.

Consumer outlook improves as inflation fears ease

The Federal Reserve Bank of New York’s monthly Survey of Consumer Expectations found that people’s financial outlook improved on a few fronts in May. The average inflation expectation for the year ahead dropped by 0.4%, to 3.2%. The perceived probability of losing one’s job sometime during the next year fell by 0.5%, to 14.8%. Household income is expected to grow by 2.7% over the next 12 months, up from 0.1% from the expectation in April. Debt fears calmed a bit, as the median probability of missing a debt payment over the next three months dropped by 0.5%, to 13.4%. Finally, spending is expected to grow by 5.0% over the year ahead. That is 0.2% less than expected in April, though it still exceeds the average of 4.9% over the past year, which means households would be raising spending faster than incomes and inflation. See summary at Federal Reserve Bank of New York.

Study links higher credit scores to better mental health

A study led by a Johns Hopkins professor found that people living in areas with higher credit scores are more likely to be mentally healthy. People who live in areas with excellent average credit scores had a 10.9% chance of showing signs of depression. For people in areas with mediocre credit scores, the depression rate rose to 13.7%. 14.9% of people in excellent credit areas reported feeling anxiety. In regions with mediocre credit scores, the rate of anxiety was 17.4%. The relationship between higher credit scores and better mental health was observed even after adjusting for income and demographic factors. See article at PublicHealth.JHU.edu.

Consumer credit use rebounds in April, led by credit cards

The Federal Reserve’s monthly report on consumer credit found that borrowing accelerated in April. Consumers had reined in borrowing during the first three months of the year, but their use of credit grew at an annual pace of 4.3% in April. It had averaged a pace of 1.3% during the first quarter. April also showed the return of a preference for revolving debt. This debt, mostly credit card balances, grew at a 7% annual rate in April, compared with a 3.3% rate for loan debt. This is concerning because revolving debt is generally more expensive than nonrevolving debt. All figures are adjusted for normal seasonal differences, so the arrival of Spring doesn’t account for the revival of borrowing. See consumer credit data at FederalReserve.gov.

Mortgage rates remain stable for ninth consecutive week

30-year mortgage rates eased by 0.1% last week, to 6.84%. 15-year rates fell by 0.2%, to 5.97%. The minimal change continues a streak of nine weeks in which 30-year rates have remained in a tight range of 6.76% to 6.89%. 30-year rates are now one basis point lower than when the year began, and 0.76% higher than the low point reached at the end of last September. See mortgage rate details at FreddieMac.com.

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Auto loan surge tied to tariff fears

The VantageScore CreditGauge reported that borrowing increased over the past year across all categories: auto loans, credit cards, mortgages and personal loans. Growth was strongest in the auto loan category. A VantageScore executive noted that “buyers appear to have accelerated their car purchases in anticipation of higher sticker prices due to the recently implemented tariffs.” Ironically, these accelerated purchases would have primarily benefited vehicle sales outside the US. In any case, the surge in auto loans has pushed borrowing in that category above pre-pandemic levels. See news release at VantageScore.com.

Americans feel stable but still wary of inflation

The Federal Reserve’s annual Survey of Household Economics and Decision-making found that 73% of adults described their financial situation as “okay” or “living comfortably.” This result was up slightly from the year before, but below the recent peak of 78% in 2021. Inflation remained the leading concern of consumers. 29% rated the national economy as “good” or “excellent.” That was up from 22% in 2023, but below the pre-pandemic level of 50%. Parents continue to face high childcare costs. Just over half of parents paying for childcare said it cost more than 50% of what they spend on housing. In light of those high childcare costs, 46% of parents of children under age 13 use unpaid childcare provided by someone other than the child’s parents, compared with 24% who use paid childcare. The newly released data come from a survey taken last October 2024, so the results reflect perceptions of the economy at that time. See report at FederalReserve.gov.

Confidence rebounds slightly in May 2025

The Conference Board’s Consumer Confidence Index had its first increase in May following five straight months of declines. The index rose by 14% in May, but remains well below where it was when the five-month slide started. The expectations component of the index remains depressed to a level that has traditionally been associated with recessions. The survey found that consumers are far more concerned about the affordability of wants and needs than job security. In terms of the impact of economic uncertainty on consumer behavior, 19% of respondents said they had made purchases sooner to get ahead of tariffs. On the other hand, 26% said they had cancelled or postponed major purchases. See news release at Conference-Board.org.

Credit scores predict overdraft risk

A Federal Reserve Bank of New York study found that low credit scores are the best predictor of whether bank customers are likely to overdraft their accounts. Only about 20% of bank customers ever overdraft their accounts. As has often been cited before, income level and ethnicity are related to the likelihood of overdrafts. However, when adjusted for credit scores, different income and ethnic groups tend to have roughly the same incidence of overdrafts. Variation in credit scores more closely predicts the probability of an overdraft. This probability is highest among people with credit scores below 620. That probability drops with each step up in credit score tier. People with scores below 620 are 50% more likely to have overdrafted a bank account than those with scores above 760. See report at NewYorkFed.org.

GDP revision confirms early 2025 slowdown

The Bureau of Economic Analysis put out a revised estimate that showed the economy shrank at an annual rate of 0.2% in the first quarter of 2025. That estimate is net of inflation and after seasonal adjustment. The decline of 0.2% marked a sharp reversal after a solid 2.4% growth rate in the fourth quarter of 2024. The latest estimate was the second of three planned official Gross Domestic Product estimates. See news release at BEA.gov.

Home prices up for third straight month

The latest update of the S&P CoreLogic Case-Shiller National Home Price Index showed that home prices rose by 0.76% in March. That was the third monthly increase in the index, after it declined overall in the second half of last year. Home prices have risen by 1.34% in 2025 and 3.37% over the past 12 months. See data at SPGlobal.com.

Mortgage rates keep climbing

30-year mortgage rates rose for a third consecutive week. They increased by three basis points over the past week to 6.89%. That’s their highest level since early February. 15-year mortgage rates also had a slight increase last week, rising by two basis points to 6.03%. Revived inflation fears have pushed mortgage rates substantially higher since their recent low point at the end of last September. See mortgage data at FreddieMac.com.

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Consumer outlook darkens in April survey

The April 2025 Survey of Consumer Expectations from the Federal Reserve Bank of New York showed economic gloom is increasingly clouding people’s outlooks. Consumers expect inflation to rise over the next three years. They anticipate that wage earnings and household income will fall. Respondents also foresee a rise in unemployment and a greater chance of missing a debt payment within the next three months. At the same time, they expect spending to grow faster than both income and inflation. See report at NewYorkFed.org.

Fed finds credit trouble spreading

A May 2025 report from the Federal Reserve Bank of St. Louis found that late credit card payments are rising across a broad range of households. Delinquencies are highest in the lowest 10 percent income areas but are also climbing in the top 10 percent. The share of credit card debt in delinquency is approaching levels seen during the 2008 financial crisis. More people are now behind on payments than during that period. See report at StLouisFed.org.

U.S. and China hit pause on tariff hikes

As of mid-May 2025, the U.S. and China have agreed to delay the harshest tariff increases they originally announced. Instead of the 145 percent rate outlined in April, the U.S. will impose a 30 percent increase over the next 90 days. China, in turn, will limit its tariff hikes to 10 percent instead of the threatened 125 percent. It is a temporary reprieve, but it signals both countries are at least willing to negotiate rather than escalate. See article at Reuters.com.

Banks tighten up credit card lending

The Federal Reserve’s May 2025 loan officer survey showed lending standards for most types of consumer credit were unchanged in the first quarter. However, banks tightened the standards for credit cards. Some also reduced credit limits, a clear sign of growing caution. Demand for most types of consumer loans weakened during the same period, though demand for auto loans stayed about the same. See loan officer survey report at FederalReserve.gov.

Card delinquencies hit post-recession high

In the first quarter of 2025, credit card delinquencies rose to 12.31 percent, the highest level since early 2011, when the country was still emerging from the Great Recession. Total consumer debt climbed to 18.2 trillion dollars, up 167 billion dollars from the previous quarter. Card balances dipped slightly, which is typical after the holiday season. Auto loan balances also declined, while balances for mortgages, home equity loans, and student debt rose. Student loan delinquencies jumped following the return of federal reporting, but at 7.74 percent, the rate remains below its pre-pandemic peak. See report details at NewYorkFed.org.

Inflation ticks up but stays mild

Consumer prices rose 0.2 percent in April 2025, following a slight dip in March. That brings the annual inflation rate to 2.3 percent, a relatively modest pace. New tariffs have yet to significantly affect pricing, as businesses continue working through older inventory and exemptions. Core inflation, which excludes food and energy, also rose by 0.2 percent in April and is up 2.8 percent over the past year. See Consumer Price Index summary at BLS.gov.

Retail sales growth nearly stalls in April

According to an early estimate from the Census Bureau, retail sales in April 2025 rose by just 0.1 percent. That is a sharp slowdown from the 1.7 percent surge in March, when consumers rushed to buy ahead of expected tariffs. The auto industry shows the swing clearly. Sales jumped 5.5 percent in March but fell by 0.1 percent in April. With tariff policy still in flux, more erratic swings in consumer spending may follow. See report at Census.gov.

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Economic ups and downs have been making headlines lately, with new tariffs, market swings, and rising costs putting extra pressure on household budgets. When inflation climbs or interest rates shift, your credit can be affected, sometimes in ways you don’t expect. Staying ahead of these changes starts with understanding how they might reach your wallet.

Managing credit during economic uncertainty is about more than just paying bills on time. It means watching how you borrow, spend, and protect your financial future, even when the headlines overwhelm. You can employ practical strategies to help keep your credit steady, no matter what the economy throws your way.

1. Know where your credit stands

The first step in protecting your credit is understanding your current position. Check your credit score regularly and review your credit reports for errors or unexpected changes. During periods of economic uncertainty, catching signs of fraud or reporting mistakes is useful.

Credit monitoring tools can help you stay on top of changes that might impact your score.

2. Track your spending patterns

When prices rise or income becomes less predictable, your budget might shift without you realizing it. Monitoring your spending helps you spot trouble areas before they lead to high balances or missed payments.

Use a budgeting app or spreadsheet to keep tabs on where your money is going and identify spending that can be trimmed or paused during tight times.

3. Keep credit utilization low

Credit utilization — the percentage of available credit you use — is a major factor in your credit score. Even if you make all your payments on time, high balances can still lower your score.

Aim to use less than 30% of your available credit across all cards. If possible, pay down balances strategically to reduce your utilization and free up credit in case of emergencies.

4. Avoid taking on new debt unless necessary

Lenders may tighten requirements or increase rates during uncertain times, making credit more expensive. Applying for new credit also triggers a hard inquiry, which can cause a temporary dip in your score.

If you don’t need new credit right now, it may be better to hold off. Instead, focus on managing existing accounts responsibly.

5. Set up automatic payments to avoid mistakes

One of the easiest ways to protect your credit score is to pay every bill on time, every time. Even one missed payment can hurt your score and stay on your report for years.

Consider setting up automatic payments or calendar reminders for all your accounts. This small step can prevent unnecessary damage, especially when your financial stress level is high.

6. Stay in touch with lenders

If you’re struggling to keep up with payments, don’t wait until you’re behind. Reach out to your lenders or creditors as soon as possible. Many offer hardship programs, forbearance options, or temporary adjustments that can keep your account in good standing.

Being proactive may help preserve your credit and reduce the long-term financial impact of a missed payment.

7. Watch for changes in interest rates

Economic instability often leads to fluctuating interest rates, especially on variable-rate credit cards and loans. If your interest rate increases, your monthly payments might rise too, even if your balance stays the same.

Check your statements for interest rate changes, and consider transferring balances to lower-rate options if available. You can compare options to see if you can reduce your interest costs.

8. Keep older credit accounts open

The length of your credit history matters. Even if you’re not using an old credit card, closing it could shorten your credit history and increase your utilization ratio, both of which may hurt your score.

Unless a card has high fees, keeping it open (and active with small, regular purchases) can support your score during unstable times.

9. Protect your identity and accounts

Fraud and identity theft often spike during periods of economic stress. Criminals may take advantage of distracted consumers or overwhelmed systems.

Monitor your credit accounts for unfamiliar charges and consider setting up alerts for suspicious activity. Tools can help detect fraud so you can respond quickly, before it impacts your credit score.

10. Make a backup plan for credit access

If the economy continues to worsen, access to credit could shrink. Banks may lower credit limits, tighten approval standards, or close inactive accounts.

To stay prepared, consider building an emergency fund — even a small one — and evaluating your credit options. Know which cards or lines of credit are most stable, and avoid sudden changes that could spook lenders or impact your score.

How to manage credit during economic uncertainty

Staying calm and focused during economic uncertainty can feel challenging, but your credit doesn’t have to suffer. You can protect your score through even the roughest economic waters by monitoring your accounts, staying ahead of payments, and avoiding high-risk financial moves.

Credit monitoring tools, personalized tips, and insights can help you make confident decisions when the economic outlook is unclear. Take small steps now to secure your credit health and keep your financial options open for the future.

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Americans are increasingly worried about rising prices, and credit card interest can quietly make everyday spending even more expensive.

Compared to other major types of consumer debt, credit cards carry significantly higher interest rates. The surprising part? Much of that cost may be avoidable.

A new report from the Federal Reserve Bank of New York breaks down why credit card interest rates are so steep—and offers insights that could help you pay less.

How credit cards stack up against other debt

Interest rates vary widely across different types of consumer debt, and credit cards top the list. According to data from the Federal Reserve and Freddie Mac, the average credit card rate is nearly three times higher than rates for mortgages or auto loans, and roughly 10 percentage points above the average personal loan rate.

This stark difference raises the question of why credit card interest rates are so much higher. The answer lies in the interest rate spread — the difference between a credit card’s interest rate and the Federal funds rate.

The Fed funds rate reflects what it costs banks to borrow money. That rate is just a starting point. Like a grocery store that marks up the price of bread to cover operating costs and earn a profit, credit card issuers add their own layers of cost. These include risk management, operations, marketing, and a profit margin.

The recent New York Fed paper breaks down those layers, showing why the spread on credit card rates is so wide compared to other types of debt.

How credit risk drives up your rate

Credit risk is the possibility that a borrower will not repay what they owe. Most credit cards are unsecured, meaning there is no collateral, so lenders rely heavily on a borrower’s creditworthiness.

Credit card companies add a cushion to interest rates to cover the losses from missed payments. The riskier the borrower, the larger the cushion.

This plays out clearly in the data. According to the New York Fed, customers with perfect 850 credit scores paid an average interest rate 7.22% above the Fed funds rate. For those with 600 credit scores, the spread jumped to 21%.

That makes sense up to a point. Higher-risk borrowers are more likely to default, and lenders adjust their rates accordingly. But credit risk alone does not fully explain the gap.

The average interest rate spread in the study was 14.5%, while current charge-off rates — what issuers actually lose to defaults — are around 5%. Even during the Great Recession, they did not exceed 10%. So, something more than risk is keeping those rates high.

The hidden cost of credit card marketing

The New York Fed study found that marketing costs are a significant reason for high credit card interest rates.

Credit card issuers have substantial operating expenses, and marketing is a big part of that. As a share of assets, these banks spend about 10 times more on marketing than other banks.

Think about how often you see credit card ads—and how many feature celebrity spokespeople. Prime-time ad slots and big-name endorsements are not cheap. Those costs get passed along through the interest rates that cardholders pay.

Inflation risk and rate caution

Although not addressed in the New York Fed study, inflation risk may be a growing factor behind persistently high credit card rates.

In theory, inflation is already baked into the Fed funds rate and should not affect the interest rate spread. However, credit card rates have not fallen as quickly as inflation or the Fed funds rate. In the third quarter of last year, the Fed funds rate dropped by 1%, yet average credit card rates fell by only 0.57%.

Credit card issuers were caught off guard by the inflation surge of 2021 and 2022. Because laws limit how fast they can raise rates, many seem hesitant to lower them now, worried that inflation could spike again.

How to cut the cost of credit card interest

Whatever the cause, carrying a balance on your credit cards can get expensive. Here are three practical ways to reduce how much you pay:

• Pay down your balance. Interest charges only apply when you carry a balance. The more you pay off each month, the less interest you owe.
• Compare your options. Credit card companies spend heavily on advertising, but the best deal is not always the loudest. Look beyond the promos to find cards with lower rates and better terms.
• Improve your credit score. As the Fed study showed, credit risk plays a big role in how much interest you are charged. A higher score could qualify you for significantly lower rates. Get your free credit score now.

Credit card companies set high interest rates to cover various costs, including credit risk and marketing. But while those rates may reflect their bottom line, they impact yours too. If you carry a balance, even small purchases can grow more expensive over time. The good news is, you are not powerless. By paying down balances, comparing card offers, and improving your credit score, you can take control and reduce the amount you spend on credit card interest.

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February 2025 job growth sub-par

Total US employment continued its winning streak by posting its 50th straight month of growth in February. However, February’s job growth of 151,000 was below the average of 168,000 for the prior 12 months. In another cautionary note, the employment report noted a decline in federal government jobs of 10,000. That’s well below the announced cuts in federal government jobs, suggesting that many of those cuts have not yet been reflected in the official employment statistics. See Employment Situation report at BLS.gov.

PCE index still elevated

The Personal Consumption Expenditures (PCE) price index increased by 0.3% in January 2025, matching the December 2024 increase. If continued over the year, a 0.3% monthly increase would amount to an annual increase of nearly 3.7%. This would represent an acceleration from the 3.0% increase over the past 12 months. The PCE price index is significant because it is the measure of inflation used by the Federal Reserve when making interest rate decisions. See details at BEA.gov.

Automakers warn of steep price hikes due to tariffs

A group representing nearly all major automakers in the United States warned that new tariffs could result in 25% price hikes for consumers. The group consists of almost every American and foreign carmaker that manufactures vehicles in the US. The sole exception is Tesla. The manufacturers noted that these tariffs would disrupt a supply chain integrated across North America for over 25 years. As for the potential of tariffs forcing manufacturing to return to the US, the automakers noted that this process would take many years and result in price hikes long before the country saw a substantial increase in manufacturing employment. Implementation of automotive tariffs has been postponed for one month, but it would take much longer to address the supply chain and manufacturing capacity issues. See article at Reuters.com.

Gender pay gap narrows a little

A new study by the Pew Research Center found that the gap between what men and women earn in the workplace has narrowed since 2003. Back then, the median hourly wage of US women was 81% of what men made. By 2024, it had risen to 85%. This gap has made more substantial progress over the longer term. Back in 1982, women’s median hourly wage was just 65% of what men made. The wage gap is much narrower among younger workers. As of 2024, women aged 25 to 34 earned 95% of what men in the same age group made. This compares to 74% in 1982 and 88% in 2003. See study at PewResearch.org.

Mortgage rates fall again for seventh week

30-year mortgage rates dropped sharply last week, falling 13 basis points to 6.63%. This was their seventh consecutive weekly decline, totaling 41 basis points. This negates part of the 96 basis point rise 30-year rates had previously made from the end of September through mid-January. 15-year mortgage rates have now fallen in six of the past seven weeks, for a total decline of 48 basis points. Last week’s drop in 15-year rates was 15 basis points, bringing them to 5.79%. See rate details at FreddieMac.com.

US productivity grew in 2024

Non-farm productivity grew by 1.5% in the fourth quarter of 2024, as output grew faster than the number of hours worked. For the full year, average annual productivity in 2024 was 2.7% higher than in 2023. Productivity gains can allow wages to grow without creating inflation pressure because workers produce more for each hour worked. See productivity report at BLS.gov.

Refinancing drives increase in mortgage applications

Mortgage application volume was up by a seasonally adjusted 20.4% last week. Refinancing activity increased by 37% last week and 83% over last year. Refinancing represented 43.8% of mortgage applications last week, up from 38.9% the week before. A sustained drop in mortgage rates over the last several weeks has fueled the increased interest in refinancing. See report at MBA.org.

Pending home sales reached a new low in January 2025

The National Association of Realtors’ Pending Home Sales Index fell 4.6% in January. That brought the index to its lowest point since it began in 2001. Pending home sales are considered a leading indicator of home sales. They represent sales agreements that have been signed but for which the transaction has not yet closed. Three of the four regions tracked by the index showed declines in January, with only the Northeast managing a slight increase. The South suffered the steepest drop in pending home sales, with a 9.2% decline in January. See details at NAR.Realtor.

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Consumers are much less confident than they were a couple of months ago. How they act on their growing fears could determine the economy’s direction.

Every month, the University of Michigan publishes an Index of Consumer Sentiment. As the name suggests, this measures how consumers feel about the economy and its impact on their finances. Economists and investors closely watch this index to see whether consumers are confident, fearful, or somewhere in between.

The latest reading of the Index of Consumer Sentiment shows a sharp drop in confidence in February. When that happens, one concern is that losing confidence could hurt the economy, as nervous consumers spend less.

While that’s a valid concern, to some extent, the recent loss of confidence could be a healthy reality check for consumers. This may mean more consumers realize they must change their borrowing and spending habits.

Why consumer confidence is falling fast

The Index of Consumer Sentiment fell by 9.76% in February, following a 3.11% decline in January. Overall, the index is down by 15.86% from a year earlier.

So, what’s giving consumers the chills?

For one thing, concern about inflation has come back with a vengeance. The University of Michigan survey shows consumers expect prices to rise by 4.3% over the next year. That’s a full percent from January 2025 and a 1.7% higher inflation rate than the 2.6% consumers expected last November 2024.

To a large extent, this can be attributed to the anticipated impact of new tariffs. What’s harder to measure is the heightened uncertainty about government policies. The full extent of tariffs, layoffs, and budget cuts has yet to be made clear, and it will take some time for the impact to set in.

Will these sudden changes cause inflation? A recession? Or will it all turn out to be for the best?

Nobody knows yet. The problem is that uncertainty paralyzes decision-making. Whether it’s consumers considering a major purchase or businesses deciding whether to hire and invest, uncertainty often forces people to the sidelines as they wait and see how the game is being played.

How inflation and uncertainty are shaping consumer decisions

Given the nature of tariffs, concern about inflation is understandable. With significant policy changes being implemented at dizzying speed, uncertainty is also natural.

In this daunting environment, consumers would do well to focus on what they can control.

The latest Survey of Consumer Expectations from the Federal Reserve Bank of New York found that as of January 2025, consumers expected their spending over the next year to grow faster than their incomes and the inflation rate.

Perhaps the plunge in consumer confidence in February 2025 will put a damper on those spending plans. That might not be such a bad thing.

Over the past four years, consumer debt has risen by 23.9%, with credit card debt leading the way. By increasing spending faster than their incomes are growing and faster than necessary to keep up with inflation, many consumers have been living beyond their means.

Perhaps a little less consumer confidence will cause some to revisit their spending habits. In the short term, this could mean an economic slowdown – and possibly even a recession. However, if it leads to more responsible borrowing habits, it could put the economy on a more solid foundation in the long run.

4 financial steps to stay secure

As the consumer confidence survey suggests, economic uncertainty is on the rise. With inflation concerns and a potential slowdown ahead, focusing on what you can control may help you stay financially stable, regardless of where the economy heads next.

• Reassess your spending habits. Ensuring that expenses don’t exceed take-home pay can provide more financial flexibility. Finding ways to cut back on nonessential spending may also make it easier to build savings over time.
• Lower borrowing costs. Carrying a credit card balance can become costly, especially with high interest rates. When possible, paying off balances in full each month may help avoid added interest. Refinancing through a personal loan or a balance transfer credit card could offer a more affordable repayment option for those with high-interest debt.
• Strengthen job security. Government layoffs and economic shifts can make the job market more competitive. Keeping skills up to date, maintaining strong job performance, and considering how an employer’s business model may hold up in this environment could be beneficial. Those in industries heavily reliant on government contracts may want to assess potential risks.
• Optimize your credit score. A strong credit score can help maintain access to credit and secure better interest rates. With lending standards tightening and inflation keeping rates high, improving credit health may provide financial advantages in the long run.

Rather than letting economic uncertainty create stress, it may be helpful to use it as motivation to strengthen financial habits. Adjusting spending, managing debt, and maintaining financial stability could help turn falling consumer confidence into an opportunity for long-term security.

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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice

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Consumer confidence plunged in February 2025

The University of Michigan’s Index of Consumer Sentiment dropped by 9.8% in February. All five components that comprise the Index fell during the month, led by a 19% drop in the outlook for buying durable goods. Those are big-ticket items such as cars, furniture, and appliances. Consumer assessment of current conditions fell by 12.5%, while expectations for the future fell by 7.9%. One thing in particular that is weighing on consumers is a rising expectation for inflation. Inflation expectations rose from 3.3% to 4.3%. That was the second consecutive sizeable monthly rise in inflation expectations. See details at UMich.edu.

Federal court blocks student loan payment assistance program

A Federal appeals court has disallowed a federal student loan program, the Saving on a Valuable Education (SAVE) plan. The SAVE plan was created during the Biden administration. It was designed to reduce monthly payments for low-to-middle-income borrowers. It was intended to be even more affordable than other income-based repayment plans. Future payment requirements for borrowers who opted for the SAVE plan will remain uncertain until the Department of Education issues revised guidelines in response to the recent ruling. See article at MSN.com.

Student loan delinquencies to hit some credit scores soon

Student loan payments resumed last fall after a pandemic-era pause, and now students who have failed to make those payments will start being reported to credit bureaus as delinquent. According to a VantageScore report, the end of the forbearance period affected 22 million student loan borrowers, and 43% are thought to be behind on their payments. Those delinquent borrowers could see declines in their credit scores of as much as 129 points. In contrast, borrowers who have resumed payments may see a modest benefit to credit scores of up to 8 points. See details at VantageScore.com.

House Majority Leader threatens to cancel oversight of fintechs

House Majority Leader Steve Scalise has targeted recent regulation of payment services like Zelle for reversal. Late last year, the Consumer Financial Protection Bureau (CFPB) ruled that apps such as Apple Pay, Google Pay, and Venmo would be subject to the CFPB’s supervision. Though these financial technology companies are not formally registered as banks, the CFPB’s view was that they provide bank-like services. Therefore, they should be subject to the same oversights as banks to protect the public. However, Scalise and some other lawmakers want those fintechs to remain free to operate as they choose. See article at Yahoo.com.

FDIC reports generally stable conditions for banks

The Federal Deposit Insurance Corporation (FDIC)  released its report on the banking industry for the fourth quarter and calendar 2024. The FDIC reported generally solid financial conditions for banks, with modest loan growth for the year despite a decline in the first quarter. Deposit growth was higher in 2024 than in 2023. Net interest income improved later in the year. Concerns cited included elevated unrealized losses due to a rise in long-term interest rates late in 2024. Also, while asset quality is generally good, there are exceptions that the FDIC is monitoring closely. See full report at FDIC.gov.

2024 Q4 economic growth stronger than previously thought

The Bureau of Economic Analysis released its second Gross Domestic Product (GDP) estimate for the fourth quarter of 2024. This new estimate is a little shy of 0.1% higher than the advance estimate released last month. GDP grew at an inflation-adjusted annual rate of 2.3% during the quarter, bringing economic growth to 2.8% in 2024. With the increase during the fourth quarter, GDP has grown for 11 straight calendar quarters. See details at BEA.gov. 

Serious delinquency rates increased in January 2025

Consumers are falling further behind on their debt payments, according to the latest credit industry snapshot from TransUnion. Delinquency rates rose for mortgages, auto loans, credit cards, and personal loans. Average balances owed declined for credit card accounts but increased for mortgages and personal loans. See report at TransUnion.com. 

Mortgage rates continue to descend

30-year mortgage rates fell for a sixth week in a row. 15-year mortgage rates have fallen for five of the past six weeks. Over the past six weeks, 30-year rates have fallen by a total of 0.28% to reach 6.76%. During the same period, 15-year rates have fallen by a total of 0.33%, which brings them to 5.94%. However, the recent easing of rates still hasn’t come close to negating the steep rise that preceded it. 30-year rates remain 0.68% higher than at the end of September 2024, while 15-year rates are now 0.79% above that low point. See rate data at FreddieMac.com.

All weekly news headlines from Credit Sesame

• Last week’s news roundup February 22, 2025
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When it comes to questions about the direction of interest rates, the spotlight is usually on the Federal Reserve. However, recent activity in the bond market may steal the show.

Long-term bond yields behave more similarly than the Fed funds rate to interest rates on long-term loans like mortgages. They also have a greater impact on government finances. That’s why consumers and the government must pay close attention to how sharply bond yields have risen lately.

Falling bond prices push yields higher

Bond yields move in the opposite direction to bond prices. Bonds typically pay out a fixed amount of interest every year. When prices rise, that interest represents a smaller percentage of the bond’s price, making the yield lower. When prices fall, the opposite is true.

This is important because bond prices have been in a funk lately. As a result, bond yields have risen sharply. Since late September, the yield on 10-year Treasury bonds has increased roughly a full percentage point.

This is especially notable because Treasury yields have risen even while the Fed has lowered short-term rates by a full percentage point over roughly the same period. So, despite the attention, the Fed’s rate cuts don’t tell the whole story about what’s going on with interest rates.

What concerns bond investors?

So, if falling bond prices have sharply increased yields, the key question is: what’s bugging bond investors?

Chiefly, there have been two concerns that have driven bond prices lower and bond yields higher:

• Inflation. Higher inflation diminishes the value of future bond payments. So, if bond investors expect higher inflation in the future, they will pay lower prices for bonds.
• The federal budget deficit. Treasury bonds are backed by the federal government. Bond investors become concerned if they sense the government is borrowing too much. Even if bond investors don’t expect the government to default on its bonds, more borrowing causes the government to issue more bonds. This disrupts the supply and demand for bonds, and too much supply leads to lower prices.

Why bond yields matter to consumers and the government

The angst in the bond market matters to more than just bond investors.

Bond yields indicate long-term lending rates for consumers. While bond yields have been rising, so have mortgage rates. 30-year mortgage rates have increased by nearly a full percent since the end of September.

Higher long-term bond yields are also a problem for the government, as Treasury bonds fund the federal deficit. Higher bond yields make it more expensive for the government to borrow, and it borrows a lot.

Inflation hints have already arrived, and investors fear worse

Again, inflation is a significant factor behind the slump in the bond market. In part, investors are reacting to evidence that inflation is already making a comeback.

From July through October 2024, the Consumer Price Index (CPI) increased 0.2% a month. This is a relatively low rate of inflation, and when the inflation rate is stable, it makes life easier for investors, businesses, and consumers.

Then inflation began to heat a little—first a 0.3% increase in November, then a 0.4% increase in December 2024.

Those might seem like small numbers. However, projected over an entire year, going from 0.2% monthly inflation to 0.4% would mean the difference between a 2.4% annual rate of inflation and a 4.9% rate.

Also, the Producer Price Index (PPI) shows rising costs, putting more pressure on businesses to pass some of those costs along to consumers. The PPI rose by 3.3% in 2024, triple the rate from the year before.

This evidence of rising inflation is bad enough, but bond investors are concerned about what happens next. The government’s plans for tariffs, mass deportations, and tax cuts all have strong inflationary elements. The recent upturn in the CPI could be just the beginning.

What consumers should expect

A few months ago, The Fed seemed to have tamed inflation, and the economy was on track toward lower interest rates. Now that things seem to be changing for the worse, consumers must adjust:

• Tighten your budget. Now is a good time to determine what expenses are essential. The best defense against rising prices is to buy less.
• Rein in your borrowing. If interest rates are going to stay higher for longer than expected, this compounds the inflation problem for borrowers. Reducing your debt balances is probably your best shot at paying less interest in 2025.
• Work on your credit score. People with higher credit scores qualify for better credit card and loan interest rates. If interest rates aren’t going to come down across the board, you need to work for every edge you can get.

The bond market, driven by continuous and large-scale trading, is a real-time barometer for inflation and interest rate trends. As bond yields climb, they signal rising borrowing costs and inflationary pressures, making it crucial for consumers to stay proactive—whether by managing debt, improving credit scores, or adjusting budgets—to navigate the shifting financial landscape.

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