The Fed Just Paused Interest Hikes Again. Here's Why That's a Good News/Bad News Situation

Rampant inflation has been battering consumers since 2021. And the Federal Reserve's job is to make sure that surging inflation doesn't wreak havoc on Americans' personal finances and the broad economy.

The Fed implemented a series of interest rate hikes in 2022 and 2023 to slow the pace of inflation. And those efforts have largely paid off. Although inflation was most recently measured at 3.2% on an annual basis, as per February's Consumer Price Index, that's not nearly as bad as things were back in 2022, when inflation peaked at over 9%.

Since the Fed has made progress in battling inflation, it's been able to pause its interest rate hikes for its past few meetings. And on March 20, the central bank once again made the decision to hold interest rates steady.

But is that good news or bad news for consumers? Actually, it's both.

The downside of paused interest rates

The Fed has signaled that it may be in a position to cut interest rates if inflation continues to cool. That's what consumers who need to borrow money want.

Borrowing has been expensive since the Fed hiked up rates. And these days, consumers are looking at higher costs for products like personal loans, home equity loans, and auto loans. Those carrying balances on credit cards may also be paying more in interest due to the Fed's string of rate hikes.

The hold-steady approach to interest rates won't benefit consumers who need a loan or are grappling with credit card debt. Granted, it won't put them in a worse position than where they are today. But it won't help. So that's the bad news part of the equation.

The upside of paused interest rates

At this point, it's pretty clear that the Fed isn't looking to raise interest rates. The current state of inflation just doesn't warrant that.

As such, the fact that the Fed isn't cutting interest rates is actually a good thing for savers. The Fed's actions in 2022 and 2023 have led to higher savings account rates, as well as higher CD rates. That's benefitting people who have money in the bank. Once rate cuts take hold, savings accounts and CDs will likely start paying less. So that's the good news.

What steps should you take in light of paused interest rates?

If you're looking to sign a loan, in light of the Fed's interest rate pause, the best thing to really do is nothing. Keep sitting tight if you're able to, because waiting to sign a loan could mean locking in a lower interest rate.

Of course, if you owe money on a credit card, it's a good idea to try to pay it off as quickly as possible. But that advice applies regardless of decisions the Fed makes, as it's just plain bad news to be racking up costly interest on an outstanding credit card balance.

Meanwhile, if you have money you're sitting on, whether because you've saved some of your recent paychecks or your tax refund recently came in, you should know that now's a good time to open a CD. This way, you can lock in an attractive rate before rates start to fall.

Later on in 2024, the Fed may opt to start cutting interest rates. But it also won't be shocking to see the Fed hold steady on interest rates again during its next meeting, which is scheduled for April 30-May 1. It pays to keep tabs on the Fed's decisions either way, as they could impact your financial situation.