From mortgages to car loans: How affordability rises and falls with the Fed

When it comes to what Americans can afford, no institution looms larger than the Federal Reserve.

The nation’s central bank, commonly known as the Fed, doesn’t set the price of groceries or cars, but it does influence how expensive it is to borrow money. 

Right now, borrowing is costly. High interest rates mean larger monthly payments on mortgages, car loans and credit cards, even if the price of a home or vehicle hasn’t changed.

WEAKENING INCOMES ADD NEW STRAIN TO HOUSEHOLDS ALREADY HIT BY HIGH PRICES

That’s why everyday life can still feel more expensive. Prices may not be climbing as quickly anymore, but the cost of paying for big purchases has.

It’s an issue front and center as the Fed meets this week.

The Fed’s rate-setting group, known as the Federal Open Market Committee (FOMC), began its two-day policy meeting on Tuesday. The closed-door session will determine the direction of the nation’s interest rates and whether borrowing costs stay where they are or begin to ease.

And nowhere is that felt more clearly than in the housing and auto markets, two of the biggest expenses for most families. 

The price of a home or a vehicle might not have changed much over the past year, but the cost of borrowing to buy one has. When interest rates are high, the monthly payment on that same house or car can jump by hundreds of dollars. You’re not paying more because the home or car suddenly got more expensive. You’re paying more because the loan did.

High borrowing costs are acting like a second inflation, pushing mortgages, car loans and credit card bills to levels that stretch household budgets to the limit. Economists say affordability will not meaningfully improve until the Fed begins cutting rates and keeps cutting long enough to ease pressure on long-term borrowing.

TRUMP INSISTS PRICES ARE ‘COMING DOWN,’ BLAMES BIDEN — BUT VOTERS SAY THEY’RE STILL GETTING SQUEEZED

That backdrop has become a political liability for President Donald Trump, who campaigned on restoring affordability and easing household financial strain but is now confronting growing voter skepticism over whether those promises are materializing.

A Fox News national survey found that 76% of voters rate the economy negatively, compared with 67% in July and 70% at the close of former President Joe Biden’s tenure. 

Voters largely blame Trump for the downturn, with about twice as many holding him responsible for the current economy as Biden and three times as many saying his policies have hurt them personally.

Trump, in turn, has blamed Federal Reserve Chairman Jerome Powell for not cutting rates more aggressively while also touting a strong economy, something economists say doesn’t line up since rate cuts are generally used to help a slowing economy, not one that’s performing well.

TRUMP SAYS HE’S CHOSEN NEXT FED CHAIR AS AFFORDABILITY PRESSURES RISE

He has also characterized the affordability crisis as a Democrat-engineered hoax and said he inherited a mess from Biden’s economic agenda, which he argues is driving current financial strain.

Democrats leaned heavily on affordability themes in state and local elections this fall, and it paid off.

In places like Virginia, New York and New Jersey, where voters have been squeezed by high housing costs and utility bills, Democratic candidates seized on Trump’s early economic moves, including his trade policy, to argue that his policies were worsening the affordability crisis rather than easing it.

They promised to rein in energy costs, expand affordable housing and protect middle-class wages, a message that resonated with voters and, analysts say, reflects a broader trend. In an economy where many still feel stretched thin, the party that speaks most directly to people’s pocketbooks often wins.

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For an institution many Americans barely follow yet feel every month, the Fed’s next move carries unusually high political and economic stakes.

The decision on whether to cut rates on Wednesday will influence both the economy’s trajectory and how affordable life feels for millions of Americans in the new year.