A week ago, the Federal Reserve decided against another rate increase, reasoning that higher borrowing costs might further slow an already weakened economy. The decisions the Federal Reserve make influence everything from mortgage rates to the stock market. The committee’s vote to keep short-term interest rates unchanged was a disappointment to consumers and politicians alike. 

A decrease would have lowered the cost of home buying, reduced credit card interest rates, and made car buying more affordable, For savings accounts and CDs, a decrease in the federal interest rate would result in lower yields. If a rate cut could have helped consumers breathe a little easier, why did the Federal Reserve vote to keep the interest rate unchanged? 

Believe it or not, decreasing the federal interest rate during high inflation would increase consumer spending which would likely drive already high prices even higher causing families to struggle even more than they already are. By keeping the federal interest rates steady at 3.75% to 4% they did us a favor – sort of. It could have increased the rate making it even more difficult to borrow money and more challenging to pay down credit card debt. However, an increase could help cool inflation.

Federal Reserve Chairman Kevin Warsh explained that most of the committee wanted to wait for more data before increasing rates again. Critics believe they delayed the inevitable as increases are expected to start up again in December – just in time for holiday shopping. From that perspective, increasing rates now would give consumers time to adjust before charging holiday gifts and travel. They would have time to adjust to higher prices, trim their holiday shopping list, and move high interest balances to 0% APR credit cards. Waiting to increase rates until consumers are in more debt is like pouring salt in the wound.