Fed holds rates at 4% as war costs hit household budgets

The Federal Reserve kept interest rates unchanged at its October meeting, maintaining the federal funds rate target between 3.75% and 4%. This decision follows a 25-basis-point increase in September and leaves consumers with high borrowing costs despite ongoing inflation pressures.

Elevated energy prices from the Iran war have added to financial stress for many Americans. Mark Zandi, chief economist at Moody's Analytics, estimated in a post on Oct. 12 that the conflict has cost the average household about $2,000 so far. He noted that while wealthy consumers are spending freely due to stock market gains, lower- and middle-income families are becoming more cautious with their spending.

For credit card holders, the steady federal funds rate has not stopped rising interest charges. Matt Schulz, chief consumer finance analyst at LendingTree, reported that average credit card rates have increased for three consecutive months. These rates are now at their highest levels since December 2025. Schulz expects further increases as issuers implement the Fed's September hike.

Mortgage rates are also remaining high, with 30-year fixed rates staying above 7% for more than a month. Jeff DerGurahian, chief investment officer at LoanDepot, explained that mortgage rates track long-term Treasury yields rather than the Fed's benchmark directly. He said lower rates require several factors to align, including cooler oil prices and progress toward the Fed's 2% inflation target.

President Donald Trump signed an executive order aimed at reducing some mortgage costs. This move comes as rising interest rates make homeownership less affordable for many buyers. Meanwhile, new-car auto loan rates have hovered around 7% throughout the year, according to Joseph Yoon, a senior analyst at Edmunds.

Yoon noted that while dealers may offer slightly lower rates during the fourth quarter to clear inventory, these deals usually benefit buyers with top-tier credit. Used-car shoppers often face rates above 10%, meaning the high cost of borrowing remains a persistent hurdle for those financing older vehicles.

Federal student loan rates for new borrowers currently range from 6.52% to 9.07%, fixed for the life of the loan based on May's Treasury auction results. On Saturday, Trump said he might support legislation capping these rates in the future. The bill, introduced by Reps. Jared Moskowitz, Mike Lawler, and Anna Paulina Luna, is currently in committee.

Savings account holders can still earn returns above 4% with top-yielding online banks. Charlie Wise, head of global research at TransUnion, suggested that paying down high-interest debt and negotiating better loan terms can help households manage the current cost of living. These steps may also improve access to favorable financing options if rates moderate later.