What's next for US interest rates?

For the third time in a row, the Federal Reserve at its May meeting left interest rates unchanged. This decision to hold rates steady — which comes in spite of President Trump's demand for cuts — leaves the central bank's overnight borrowing rate at a target range between 4.25% to 4.50%. Interest rates have remained there since last December, following a series of rate cuts in late 2024.

This "wait-and-see approach" from Fed officials comes "amid heightened uncertainty about how significantly President Trump's tariffs will raise inflation and slow growth," said The New York Times. In a statement released after its May meeting, the Federal Reserve said that although the labor market remains "solid," economic uncertainty has "increased further" and "risks of higher unemployment and higher inflation have risen."

What will the Fed do next?

While Federal Reserve Chairman Jerome Powell has not "ruled it out" that the Fed will cut interest rates in June, "he also has repeatedly said that the Fed is not in a 'hurry' to make a move," said the Times. Rather, Powell indicated at a press conference following the May meeting that the Fed plans to wait and see what effects Trump's tariffs may have on the economy. "It's really not at all clear what it is we should do," Powell said, per the Times.

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Given the fact that the economy is "still on solid footing and unemployment low," Powell suggested that "there is 'no cost' to the Fed taking its time" for now, said the Times. However, that could shift if "inflation and unemployment increase together and force the Fed to choose which risk is more important to try to offset with monetary policy," said Reuters.

When is the next interest rate decision?

The Federal Reserve next meets June 17-18. Powell has indicated the Fed will take a wait-and-see approach to adjusting rates in response to inflationary pressures from Trump's tariffs as well as the unemployment rate. Investors anticipate this means another month of the Fed leaving interest rates unchanged, with traders giving it "a 76.8% chance the Fed holds rates steady again at its next decision in June," said CNN Business.

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.