Impact of Tariffs on Economic Growth

Recent data shows inflation has eased, but ongoing trade conflicts raise concerns about future price hikes on consumer goods. Brett House, an economics professor at Columbia Business School, notes that tariffs on essential materials such as aluminum, steel, and oil will likely lead to broader price increases affecting various sectors of the economy.

Kevin Hassett, director of the National Economic Council, has indicated a climate of “some uncertainty” surrounding the U.S. tariff agenda, reinforcing the cautious stance of the Fed.

House elaborates that increased global uncertainties compel the Fed to adopt a “wait-and-see” strategy, illustrating the careful balancing act policymakers must perform.

Consumer Borrowing Costs and Economic Pressure

Adjustments in the federal funds rate directly influence what banks charge for overnight loans and consequently impact borrowing and savings rates for consumers. Although the Fed raised rates throughout 2022 and 2023, recent cuts have reduced the benchmark rate, yet consumer rates remain high.

Greg McBride, chief financial analyst at Bankrate.com, reports that many households continue to feel the financial strain due to elevated borrowing costs and persistent high prices.

Consumers may start to experience some relief as borrowing costs for items like homes and vehicles are predicted to decline gradually.

Current Trends in Borrowing Rates

Credit Cards

Most credit cards are issued with variable rates, which makes them susceptible to changes in the Fed’s policy. As of now, the average annual percentage rate (APR) for credit cards has slightly decreased from 20.27% to 20.09% since the beginning of the year, following a trend of six consecutive months of declines, as noted by LendingTree’s chief credit analyst, Matt Schulz.

Mortgages

Fixed mortgage rates reflect broader economic trends and are currently on a downward trajectory, driven by fears of economic slowdown. The average rate for a 30-year fixed mortgage is reported at 6.78%, while the 15-year fixed mortgage sits at 6.24%, according to Mortgage News Daily.

Auto Loans

While auto loan rates have decreased recently, they remain high due to rising vehicle prices exacerbated by tariffs. As of mid-March, the average five-year auto loan rate stood at 7.2%, with used car loans averaging 11.3%. These rates are higher compared to the end of 2024 levels.

Student Loans

Federal student loan rates remain stable, protecting borrowers from immediate fluctuations in the Fed’s rates. For the 2024-25 academic year, the rate for direct undergraduate federal student loans is 6.53%, an increase from the previous year’s 5.50%.

Savings Rates and Economic Outlook

On a positive note, savings rates have not fluctuated significantly and continue to offer appealing returns compared to inflation. The top-tier online savings accounts now average 4.4%, which, though slightly reduced from roughly 5% last year, still exceeds the current annual inflation rate of 2.8%.

Many experts believe that while consumers face challenges, there is potential for gradual improvement in their financial outlook as borrowing costs normalize and inflation pressures stabilize.