Fed Holds Rates Steady as Energy Costs Squeeze Households and Keep Borrowing Expensive

The Federal Reserve held interest rates steady at its October meeting, even as higher energy costs threaten to keep inflation elevated and add pressure to household budgets that are already stretched thin.

Energy prices linked to the Iran war may prove more persistent than expected. Holding rates gives policymakers more time to judge the economic fallout, but it could also push Fed Chairman Kevin Warsh and the Federal Open Market Committee toward a rate increase at their December meeting as they work to bring inflation back to the 2% target.

Mark Zandi, chief economist at Moody's Analytics, wrote on Oct. 12 that the war has cost the average American household about $2,000 so far, mostly from higher energy costs, along with increased interest costs. He told CNBC that wealthy consumers are benefiting from the rally in AI stocks and spending freely, while "lower- and middle-income consumers are increasingly struggling with falling real wages and high rates."

With the target range at 3.75% to 4% and more increases expected, borrowers are unlikely to see much relief soon. Credit cards respond most directly, since most carry variable rates tied to the prime rate, which usually sits about 3 percentage points above the Fed's benchmark. Even though the Fed raised rates by 25 basis points in September and otherwise held steady, LendingTree reports that average card rates have climbed for three straight months to their highest level since December 2025. Analyst Matt Schulz said rates are highly likely to rise further as issuers apply the September hike.

Mortgages follow a different path. Fixed 15- and 30-year rates track long-term Treasury yields, which have risen on worries that U.S.-Iran tensions and energy costs will sustain inflation. According to Mortgage News Daily, 30-year fixed rates have stayed above 7% for more than a month. LoanDepot's Jeff DerGurahian said lower rates would require several developments, including cooler oil prices, softer consumer spending and steady inflation reports showing progress. President Donald Trump has also signed an executive order aimed at reducing some mortgage costs.

Auto loan rates are fixed for the life of the loan. Edmunds analyst Joseph Yoon said the average new-car APR has hovered at about 7% all year. Year-end promotions may bring temporarily lower rates, he said, but those are largely reserved for new-car buyers with top-tier credit. Used-car loan rates remain above 10%.

Federal student loan rates are also fixed, though new borrowers face higher rates based on the May 10-year Treasury note auction. They currently range from 6.52% to 9.07%, depending on loan type. Trump said on Saturday he "might" support legislation capping federal student loan rates. The bill, introduced by Reps. Jared Moskowitz, Mike Lawler and Anna Paulina Luna, is still in committee.

Savers have a bright spot. Some top online savings accounts pay more than 4%, according to Bankrate. Schulz said the returns are below the records of a few years ago but far better than those at large traditional banks.

Economists say the Fed's biggest effect on households may come through inflation control. Sung Won Sohn of Loyola Marymount University and SS Economics noted that "the Fed cannot drill for oil, but it can make borrowing more expensive," which can restrain demand and limit businesses' ability to pass on costs. In the meantime, experts suggest paying down high-interest debt, negotiating better loan terms and moving savings into higher-yielding accounts. TransUnion's Charlie Wise said such steps can also improve access to better financing if rates ease.