The federal funds rate will impact how much Americans pay for homes, credit cards, and cars.

The federal funds rate will impact how much Americans pay for homes, credit cards, and cars. halbergman/Getty Images

The federal funds rate will impact how much Americans pay for homes, credit cards, and cars. halbergman/Getty Images

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The Federal Reserve held rates steady for the fifth time this year, a decision that will affect how much Americans pay for their homes, credit cards, and cars.

The federal funds rate — which has a target range of 4.25% to 4.50% — is the Fed’s benchmark short-term interest rate that banks and credit unions use to borrow and lend excess reserves to one another. While that doesn’t directly impact consumers, banks use the information to determine what interest rates to set for small businesses, homeowners, and credit card users.

The central bank makes its rate calls based on key indicators of economic health: primarily inflation, which ticked up last month, and unemployment, which has been low and mostly stable. Chair Jerome Powell has also been keeping a close eye on President Donald Trump’s rapidly changing tariff policies and how that could affect the jobs market and prices.

The Fed’s Wednesday decision to keep rates steady doesn’t spell major changes for banks, consumers, and businesses trying to borrow money for now.

Here are four main ways that the central bank’s decision will shape consumer borrowing costs and market stability.

Homeowners likely won’t see a major change in mortgage rates

The 30-year fixed mortgage rate is typically shaped by 10-year Treasury yields, which tend to move up or down alongside the federal funds rate.

For hopeful homebuyers, the Fed’s decision to keep rates steady means mortgage rates will likely remain stable in the short term. The current average interest rate for a 30-year fixed mortgage was 6.76% this month, per Bankrate.

Auto loans will also likely remain stable

The US two-year auto loan rate is often set a few percentage points above the federal funds rate. With interest rates left unchanged, it’s unlikely that Americans will see any drastic change in the price of car loans until the Fed makes a move. Experian reported that the overall average auto loan interest rate was 6.73% for new cars and 11.87% for used cars in the first quarter of 2025.

This differs from summer 2023, when auto loans were at their highest point in over a decade.

There won’t be surprises for credit card holders

Credit card rates are higher than the federal funds rate, but follow the same pattern. With Fed rates left unchanged, it’s likely credit card rates will follow.

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Americans paying off credit cards can expect their interest rates to remain high. The average rate was 21.2% in May, which follows a steep climb from 14% to 20% between 2022 and 2024. The credit card interest rate range is currently 5.75% to 36% for new applicants, per WalletHub, with minimal change compared to June.

Markets see future cuts as fuel for the rally

With the Fed on hold for now, investors are turning an eye to the September meeting. According to the CME FedWatch tool, markets see about a 60% chance the central bank cuts rates by 25 basis points at its next meeting.

“We continue to expect the Fed to resume policy easing in September, cutting rates by 100 basis points over the next 12 months,” said Ulrike Hoffmann-Burchardi, CIO Americas and Global Head of Equities, UBS Global Wealth Management. Many Fed governors have stated that they feel more clarity on the impact of tariffs is needed.

Rate cuts are part of the broader bullish thesis for markets through the rest of 2025. Lower rates are expected to unlock more demand for stocks and help boost corporations’ financial positions, thus creating a fresh tailwind for earnings.

That said, until the next rate cut is delivered, markets will be looking to other catalysts like earnings.