A new reality has finally started to set in across American households: Higher interest rates are here to stay, according to a Wall Street Journal analysis. The economy has held up relatively well ever since the Federal Reserve started aggressively raising rates early last year. Many households have breathing room because they locked in low rates on their mortgage or car loan before the rate increases started. And in at least one significant way, the high rates can help consumers: Savers can get more bang for their otherwise idle cash. But these higher-for-longer rates are starting to exact a toll on households that need to borrow now, especially for major purchases such as homes and cars. Those who have to rely on credit-card debt, where rates rise along with the market interest rates, are also feeling the bite. In some ways, this tightening is what the Fed wants, because its rate hikes are meant to slow down the economy to curb inflation. The Fed this week signaled it could raise interest rates once more this year. In other words, rates aren’t expected to go down soon. Inflation, for the first time in a long time, is stinging less. This summer, wage gains surpassed inflation for the first time since 2021. Price increases have slowed more than expected, while competition for workers has put pressure on employers to raise pay. Consumers have continued to spend, including on travel, restaurants, clothes and other discretionary purchases. Households have drawn down the glut of extra cash they were able to save early in the pandemic. Still, account balances are elevated compared with 2019 levels.
