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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Moody’s joins other agencies in U.S. credit downgrade

In May 2025, Moody’s Ratings became the third of the three major institutional credit agencies to downgrade U.S. debt. Credit agency grades are an assessment of the reliability of the borrower. As with individuals, institutions such as the U.S. government that borrow money may have to pay higher interest rates if their credit ratings are lowered. In this case, the reduced rating could result in higher U.S. bonds, notes, and T-bill yields. That translates to higher borrowing costs for the government. The Moody’s report stated that its decision was based on the fact that the U.S. has debt and interest payments that are a much higher proportion of its revenue than other top-rated countries. Moody’s also noted that the extension of the 2017 Tax Cuts and Jobs Act, currently under consideration in Congress, would add $4 trillion to the deficit over the next decade. In cutting the U.S. credit rating, Moody’s joins Standard & Poor’s and Fitch Ratings, which had previously downgraded U.S. debt. See article at Yahoo.com.

Capital One completes $35B Discover acquisition

Capital One announced that it completed its Discover purchase, following regulatory approval in April 2025. This concludes a process that took 15 months from the initial announcement of the intended purchase. The takeover creates the largest credit card issuer in the U.S. as measured by loan volume. Customer accounts at both institutions will remain unchanged for now. However, customers should remain alert to notifications of possible changes in the months ahead. See article at Yahoo.com.

Delinquencies ease slightly, but debt balances continue to rise

The April 2025 Credit Industry Snapshot from TransUnion found that payment delinquencies eased for auto loans, credit cards, mortgages, and personal loans. Even the troubled subprime credit card category showed improved payment performance. The percentage of subprime credit card customers whose payments were 90 days or more overdue was 21.06 percent in April. While still high, that figure marks an improvement from 21.86 percent in March and 23.08 percent a year earlier. However, not all the news on consumer debt was encouraging. Average balances owed increased for credit cards, mortgages, and personal loans. See report at TransUnion.com.

Klarna reports rising BNPL losses in first quarter

An earnings release for the first quarter of 2025 from Buy Now Pay Later (BNPL) leader Klarna showed that losses from unpaid bills are mounting. More consumers are turning to BNPL as conventional credit becomes maxed out, but a growing number are finding it challenging to keep up with payments. Klarna reported consumer credit losses of $136 million in the first quarter, up 17 percent compared to the same quarter in 2024. The growth rate for losses outpaced Klarna’s growth rate for revenues. The consumer credit losses were high enough to result in a $99 million net income loss for Klarna in the first quarter. See article at NBCNews.com.

Fed survey shows consumers still use cash, but habits are shifting

A 2024 Federal Reserve Bank of Atlanta study found that cash usage has declined steadily but remains fairly common. In 2024, consumers used cash in 14 percent of their transactions. This was down from 16 percent the previous year and 19 percent back in 2021. In total, 83 percent of consumers reported using cash at least once within the past 30 days, down from 87 percent in 2023. Use of paper checks declined from 40 percent of consumers in 2023 to 35 percent in 2024. Credit cards were the leading form of payment, used in 35 percent of transactions. Debit cards followed closely at 30 percent. Payment cards are also gaining traction in bill payments, with credit cards used in 15 percent of those transactions and debit cards in 18 percent. The survey also found that ownership of crypto assets has declined for two consecutive years, from a peak of 9.6 percent in 2022 to 8.6 percent in 2023 and 7.7 percent in 2024. Finally, 71 percent of consumers reported using a mobile phone or tablet to make a payment in 2024, which has held steady since 2021. See details at AtlantaFed.org.

Mortgage rates rise to highest level since February

Thirty-year mortgage rates rose by 5 basis points last week to reach 6.86 percent, the highest level since mid-February 2025. Last week’s increase also pushed 30-year rates 1 basis point above where they were at the start of the year. Fifteen-year mortgage rates rose by 9 basis points last week, returning to just above the 6 percent mark at 6.01 percent. As with 30-year rates, 15-year rates are now 1 basis point above their early January level. See rate details at FreddieMac.com.

Mortgage application volume declines despite year-over-year gains

The recent rise in mortgage rates has cooled mortgage application activity. Overall application volume declined by 5.1 percent on a seasonally adjusted basis last week, according to the Mortgage Bankers Association. Despite the weekly slowdown, mortgage applications remain higher than a year ago. Refinance applications rose 27 percent from the same week in 2024, while purchase applications increased by 13 percent. See mortgage application release at MBA.org.

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Parents fuel gig economy spending

Households with children are likely to remain among the heaviest users of gig economy services such as ride sharing and food delivery. A new TransUnion survey finds that these households are nearly five times more likely than those without children to spend $500 or more per month on such services. In the survey, 23% of families with children reported this level of spending, compared to just 5% of child-free households. Delivery of prepared foods is the most frequently used service, with 61% of households with children using it at least once a week, versus 40% of those without children. Retail deliveries, including groceries, are the second most common, used by 54% of families with children and 33% of those without. See news release at TransUnion.com.

Consumer debt returns to growth in March 2025

Consumer debt resumed its upward trajectory in March, according to the Federal Reserve, rising at a 2.4% annual pace — more than enough to offset February’s slight decline. In a shift from recent patterns, nonrevolving debt, which includes loans, grew faster than revolving debt, such as credit card balances. While revolving debt is typically more expensive, nonrevolving debt increased at a 2.7% annual rate, compared to 1.7% for revolving debt. See consumer credit report at FederalReserve.gov.

1 in 5 student loans now seriously delinquent

About one in five federal student loans is now 90 days or more past due, according to a new TransUnion study — the highest serious delinquency rate the agency has ever recorded. The data excludes borrowers in forbearance or deferment, meaning the actual number of those behind on their original repayment schedules is likely higher. The report comes as the Department of Education resumes referring delinquent loans for collection as of May 5. See article at Yahoo.com.

International travel to the U.S. drops 14%

Foreign travel to the United States declined by 14% year over year through March, according to the U.S. Travel Association. The drop is believed to stem in part from a more hostile political climate. The association estimates that each 1% decline in travel volume results in approximately $1.8 billion in lost revenue, underscoring the broader economic impact of reduced international visits. See article at USTravel.org.

U.S. productivity declines for first time in over two years

Business productivity in the U.S. fell at a seasonally adjusted annual rate of 0.8% in the first quarter of 2025, marking the first decline in two and a half years. The drop raises concerns on multiple fronts: falling productivity can contribute to inflation by reducing output per hour worked, and it may also signal an economic slowdown as companies cut production in response to weakening demand. See first quarter productivity report at BLS.gov.

Fed holds interest rates steady amid mixed signals

The Federal Reserve has left the federal funds rate unchanged at a range of 4.25% to 4.5% following its latest policy meeting. After cutting rates by a full percentage point late last year, the Fed still officially plans to lower rates by another 0.5% in 2025. For now, the decision to pause reflects the central bank’s effort to balance its dual mandate: supporting a cooling job market while keeping inflation in check. Although hiring has slowed, employment is still growing, and inflation, while easing, could rise again if tariffs pressure consumer prices. See Fed statement at FederalReserve.gov.

Mortgage rates hold steady despite market volatility

Despite recent turbulence in financial markets, mortgage rates have remained steady. Last week, 30-year fixed mortgage rates stayed within a narrow range of 6.76% to 6.83% for the fourth consecutive week, holding firm at 6.76%. Fifteen-year mortgage rates also showed little movement, slipping just three basis points to 5.89%. See rate details at FreddieMac.com.

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Consumer sentiment drops sharply across the board

The University of Michigan Index of Consumer Sentiment declined 11% over the past month, with the latest survey describing the drop as “pervasive and unanimous across age, income, education, geographic region, and political affiliation.” The index is now down 30% since December 2024. The share of consumers expecting unemployment to rise has increased for five straight months, doubling since November 2024 and reaching its highest level since 2009. Meanwhile, inflation expectations rose from 5.0% to 6.7% last month—the fourth consecutive month of increases of 0.5% or more—pushing the average outlook to its highest level since 1981. See consumer sentiment report at UMich.edu.

New York Fed survey shows worsening outlook

The New York Fed’s latest Survey of Consumer Expectations mirrors the gloomy outlook from the University of Michigan, projecting slower growth and higher inflation. Expectations for household income over the next year declined by 0.3% in March to 2.8%, while perceived job loss risk rose, particularly among households earning under $50,000. Median household spending expectations slipped by 0.1% to 4.9%. More households now report that obtaining credit is harder, and expect conditions to worsen in the year ahead. See details at NewYorkFed.org.

U.S. credit scores dip slightly in early 2025

FICO reports that the average U.S. credit score is now 715, down 1 point since January and 2 points from a year ago. The decline is largely attributed to the resumption of reporting on student loan delinquencies and a broader increase in missed payments. However, seasonal decreases in credit card utilization helped offset the trend and offered a modest lift to scores. See news release at FICO.com.

Trump administration removes Democratic NCUA board members

The Trump Administration has removed Democratic board members Todd Harper and Tanya Otsuka from the National Credit Union Administration, leaving only Republican Chairman Kyle Hauptman in place. Harper, initially appointed by Trump in 2019, and Otsuka were both serving on the three-member board overseeing the $2.3 trillion credit union sector. The NCUA, created by Congress in 1970, functions as an independent agency to insure and supervise credit unions. See article at Reuters.com.

Mortgage rates spike after stable stretch

Thirty-year mortgage rates rose 0.21% last week to 6.83%, ending a six-week period in which rates had hovered within a narrow 5-basis-point range. Fifteen-year mortgage rates also jumped by 0.21% to reach 6.03%, their highest level since mid-February. The increase may be driven by renewed concerns about inflation, which are pushing interest rates upward. See rate details at FreddieMac.com.

March 2025 retail sales rebound, but early-year weakness lingers

Retail sales climbed 1.4% in March—the most substantial monthly gain since early 2023—according to Census Bureau data. However, earlier declines of 1.2% in January and a sluggish 0.2% rise in February temper the optimism. Some analysts believe March’s surge may have been driven by consumers rushing to buy high-priced items before new tariffs take effect, boosting current spending at the potential expense of future demand. See article at Yahoo.com.

Tensions rise between Trump and Fed over rates

Fed Chair Jerome Powell’s comments about taking a wait-and-see approach to further rate changes were met with criticism from President Trump. Powell cited uncertainty from new tariffs, which could both increase inflation and slow economic growth, posing a challenge to the Fed’s dual goals of maintaining price stability and promoting economic growth. Trump responded by calling for Powell’s “termination,” believing that rate cuts would stimulate the economy. Meanwhile, market conditions limit the Fed’s flexibility, with Treasury yields surging in response to inflation fears. See article at Yahoo.com.

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Credit card balances inch upward despite dip in total consumer debt

Consumer debt declined at a seasonally adjusted annual rate of 0.2% in February 2025. While modest, this marked only the fourth month of decline since 2020. The pullback in borrowing may signal rising consumer unease about the economy. However, revolving debt, primarily consisting of credit card balances, ticked up at a seasonally adjusted annual rate of 0.1%. In contrast, non-revolving debt, such as installment loans, fell at a rate of 0.3%. Revolving debt has outpaced non-revolving debt in recent years, partly due to the higher interest rates typically associated with it. See details at FederalReserve.gov.

Signs of distress emerge in credit card repayment trends

The Federal Reserve Bank of Philadelphia reported that recent credit card data reveals growing signs of “consumer distress.” The percentage of credit card accounts 90 days or more past due has reached its highest level in the 12 years the Fed has tracked this metric. Even many consumers who stay current on payments find it challenging to keep pace. The share of customers making only the minimum monthly payments is also at a record high, making it harder to reduce outstanding balances. With high interest rates and ongoing charges, debt balances may continue rising for those making minimum payments. See article at PYMNTs.com.

Debit and check fraud drive most financial losses

A Federal Reserve survey of risk officers found that debit cards accounted for the largest share of fraud-related losses reported by U.S. financial institutions last year, making up 39%. Check fraud followed closely at 30%, underscoring the vulnerability of checking accounts. In contrast, credit card fraud accounted for just 5% of losses. While debit cards lead in total fraud losses, check fraud is the fastest-growing category, with attempted check fraud rising by 10% last year. See article at ABA.com.

Tariff fears ripple across stocks and bonds alike

Typically, U.S. Treasury bonds serve as a safe haven when stocks falter. But the global anxiety over tariffs has driven bond prices down as well. One financial firm described the trend as a “sell America trade,” reflecting concerns about U.S. isolation from the global financial system. Bonds are particularly sensitive to inflation, and fears that tariffs could drive inflation higher are fueling the ongoing bond market sell-off. See article at Reuters.com.

Temporary tariff pause brings relief and more questions

In a new tariff development, President Trump announced a 90-day delay in implementing reciprocal tariffs for all countries except China. The stock market initially surged in response but gave up gains the following day. The future remains uncertain once the pause ends, leaving investors wary and businesses struggling to navigate supply chain decisions amid ongoing tariff unpredictability. See article at Yahoo.com.

Consumer inflation eases slightly in March 2025

The Consumer Price Index (CPI) declined by 0.1% in March, though it remained 2.4% higher compared to a year earlier. Core CPI, which excludes food and energy prices, rose by 0.1% for the month and 2.8% over the past 12 months. March prices did not yet reflect the effects of new tariffs and may have been influenced by growing concerns over a slowdown in economic activity. See CPI report at BLS.gov.

Producer prices decline, easing inflation concerns

The Producer Price Index (PPI), which had been rising recently, fell by 0.4% in March 2025. This lowered the year-over-year increase to 2.7%—still above the 2.1% low from August and September last year, but an improvement from February’s 3.2%. The PPI will be an important index to monitor if new tariffs are implemented. See PPI report at BLS.gov.

Mortgage rates hold steady amid broader market swings

While other interest rates, such as bond yields, have been volatile in recent weeks, mortgage rates have remained notably stable. The average 30-year mortgage rate dipped by two basis points last week to 6.62%, marking six straight weeks within a narrow 5-basis-point range. The 15-year rate also held steady at 5.82% for the second week in a row. Although mortgage rates remain elevated compared to late September 2024 lows, the recent consistency offers some predictability for prospective homebuyers. See rate data at FreddieMac.com.

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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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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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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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The post Why credit card interest rates are high and how to pay less appeared first on Credit Sesame.

Six months ago, the Fed interest rate outlook pointed to lower borrowing costs. But that path has shifted. Inflation is rising again, economic growth is slowing, and the Federal Reserve’s latest projections suggest fewer rate cuts — or none at all. That change could make credit cards and other debt more expensive. Knowing how the Fed’s changing course affects you can help you take smarter steps to protect your finances.

Shifting signals from the Fed interest rate outlook

To understand how drastically the outlook for interest rates has changed, it helps to think back to how things were six months ago.

One of the bright spots for the economy was the falling inflation rate. The Consumer Price Index rose by just 2.4% for the year ending September 30, 2024, after having peaked at 9.0% in mid-2022. Since the Federal Reserve had previously cranked up interest rates in response to high inflation, the sharp drop in the inflation rate gave it room to start bringing rates back down.

The Fed made a 50-basis point rate cut in its September meeting. Following that meeting, it released economic projections that showed it intended to make a further 50 basis points worth of cuts by the end of the year and an additional 1% worth of cuts in 2025.

So what has happened since? Well, the only thing that has gone according to plan is that the Fed did follow through and make an additional 50 basis points worth of rate cuts in the final quarter of 2024.

However, inflation has reversed course and started rising again. The year-over-year inflation rate is now 2.8%. Worse, inflation has been running at an annualized rate of 3.8% since the end of September.

There may be worse news to come. Massive government layoffs and an escalating trade war have created an atmosphere of uncertainty about the economy. After meeting in March, the Fed released updated economic projections that showed how its outlook has changed. Since September, the Fed has raised its forecast for 2025 inflation by 0.6% and lowered its forecast for this year’s GDP growth by 0.3%.

Both of those developments could impact the Fed’s rate decisions and, in particular, the rates you pay on credit cards.

Rising credit risk could drive rates higher

The trend in recent months, plus the threat of new tariffs, could mean more upward pressure on prices. That would mean higher inflation.

If that happens, credit card companies will be inclined to keep their rates higher. Part of this is to keep their rates comfortably above the inflation rate. Another part of it is to protect against uncertainty.

The news on tariffs seemingly changes every day. It’s a complicated dynamic. With so many other countries involved, there are several potential sources of additional inflation depending on how they respond to US tariffs.

When in doubt, credit card companies are inclined to keep their rates on the high side to guard against the threat of inflation getting out of control. After all, the law limits how quickly credit card companies can raise their rates. That makes them more likely to respond to inflation risk by getting ahead of a rising price trend when possible.

How to manage borrowing in uncertain times

Inflation is not the only trend that could push prices higher. Consumer defaults are also a factor.

When credit card customers are late or miss payments, card issuers experience losses. This is known as credit risk. Credit card companies raise interest rates to cover that risk, particularly for consumers with lower credit scores or signs of financial instability.

The percentage of credit card balances with payments 90 days or more overdue is now the highest in 13 years. If the economy weakens, as the latest Federal Reserve projections suggest it might, that could get even worse.

With credit risk rising, credit card companies may respond by raising rates. In particular, customers with low credit scores will be most likely to see higher rates because they are deemed the most likely to miss payments.

Reduce or refinance before rates rise

Just as credit card companies have to guard against the possibility of rising inflation and credit risk, so should you. Those things could mean higher interest rates, making borrowing more expensive.

Reducing your credit card balances is the best way to protect against that. Keep borrowing to a minimum, and make every effort to pay off more than you borrow each month. Reducing those balances will reduce the interest you’re charged. As a side benefit, lower balances are good for your credit score. That could shield you somewhat from the higher rates charged to riskier credit card customers.

If you can’t pay down balances immediately, consider refinancing to decrease your interest costs. Personal loans, home equity loans, and balance-transfer credit cards are all possibilities for refinancing high-interest credit card debt. Just be sure to have a solid repayment plan before trying any of these options.

How to stay ahead of changing rates

The Fed’s latest projections suggest consumers may face higher borrowing costs for longer than expected. But you’re not powerless. By paying down debt, refinancing strategically, and improving your credit profile, you can reduce the impact of rising rates and protect your finances through uncertainty.

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