What's next for US interest rates?

The Federal Reserve opted to hold interest rates steady once again at its meeting in March, marking the second time it has done so this year. This pause follows a series of rate cuts at the end of 2024 that cumulatively reduced the central bank's overnight borrowing rate by a full percentage point, to a target range between 4.25%-4.50%, where it still remains.

The central bank has opted to keep rates where they are "as it assesses how policy changes by the Trump administration could reshape the economic outlook," said The Wall Street Journal. Already, the Fed is "marking up its forecasts for inflation and revising down its outlook for growth this year."

What will the Fed do next?

Though the Fed has signaled it still plans on two rate cuts this year, it is waiting to see how President Trump's agenda unfolds before determining its next steps.

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The Federal Reserve's March meeting "marked the central bank's most direct acknowledgment to date that President Trump's policies are set to have a real impact on the economy, stoking significant uncertainty about where inflation, growth and — ultimately — interest rates are headed," said The New York Times. In fact, the Fed chair "went as far as saying that tariffs likely mean 'further progress may be delayed' on getting inflation back to the central bank's 2% target."

Federal Reserve Chair Jerome Powell said at a press conference following March's meeting that "the Fed does still expect inflation to get back nearly 2% by the end of next year," said The Associated Press. However, "Fed policymakers also expect the unemployment rate to tick higher," and predicted economic growth will fall "to just 1.7% in 2025, down from 2.8% last year, and 1.8% in 2026."

When is the next interest rate decision?

The Federal Reserve next meets May 6-7. "Despite the uncertain impact of President Donald Trump's tariffs, as well as an ambitious fiscal policy of tax breaks and deregulation, officials said they still see another half percentage point of rate cuts through 2025," which means two quarter-percentage point reductions to come this year, said CNBC.

How do interest rates affect the economy?

The Fed uses interest rates to either stimulate or rein in economic activity.

Generally, the theory is that "cutting rates decreases borrowing costs, prompting businesses to take out loans to hire more people and expand production," which "in turn, stimulates economic activity and growth," said Investopedia. "Conversely, when the economy is overheating, the Fed may raise rates to cool things down and prevent inflation from spiraling out of control."

What do rate changes mean for your wallet?

Beyond broader economic implications, the Federal Reserve's decisions also have significance for your finances.

When rates are cut, that provides "some welcome relief for consumers who are in the market for a home or auto purchase, as well as for those carrying pricey credit card debt," said CBS News, by lowering interest rates on those products. On the other hand, rate cuts "could also have a downside of shaving the relatively high returns recently enjoyed by savers," said the outlet.

Meanwhile, when the Fed decides to raise rates, it usually has the inverse effect, in that it will typically lead interest rates on credit cards, auto loans and variable rate mortgages to go up. The good news with rate hikes, though, is that "savings accounts tend to earn more interest," said LendingTree.