The decisions of the US Federal Reserve and the European Central Bank yesterday and today, respectively, to fix interest rates have direct consequences for people’s pockets, their payments, and the return on their savings.
The interest rate decision lies at the heart of the modern monetary policy tools used in the vast majority of countries in the world, and is used primarily to control the rates of price increases and stimulate economies. If the price level rises as at the present time as a result of the American-Israeli war on Iran, the central banks keep the interest at high levels and even raise its level if inflation increases in order to attract savers’ money to the banks to benefit from the high return, thus depriving the market of more demand, which leads to lower prices.
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However, raising interest, in return, raises the cost of borrowing for projects wishing to expand, and hence central banks resort to lowering interest after calming price increases, with the aim of making more money available for lending at lower interest rates and increasing spending to stimulate economies, as savers find that they do not receive a large interest, which prompts them to increase spending and meet their needs, and also pushes them to various investment tools.
Yesterday, the US Federal Reserve kept interest rates at 3.5% to 3.75% as inflation rose due to the repercussions of the Iran war.
The decision came after US inflation (consumer price index) rose last March, as official data showed an increase of 0.9% compared to February, and an increase of 3.3% compared to March 2025.
Energy prices increased by 12.5% year over year over the past month.
The US interest decision is linked to the global economy, as the Federal Reserve is the one that issues the dollar currency, which is widely used in global trade and in countries’ monetary reserves. There are also countries that link their currencies to the US dollar.
Global impact
Today, the European Central Bank left interest rates unchanged as expected, but indicated its growing concerns about accelerating inflation, which strengthened bets that it will raise interest rates several times this year, with a possible first step in June.
Inflation jumped to 3% in April, far exceeding the bank’s target of 2%, and is expected to continue rising as oil prices reach their highest levels in 4 years, which increases the possibility that the energy repercussions will cause an inflationary spiral that will be difficult to contain.
According to the “BankReit” platform, the interest announced by central banks is applied directly by commercial banks on both lending and deposits, which means moving to consumer loans, credit cards, car financing, and mortgages, as well as to the return received by holders of deposits and savings accounts.
In simpler terms, when interest rates remain high, the bank that lends to individuals and companies charges a higher cost on new loans, so borrowers do not feel a rapid improvement in their monthly payments, and those who want to buy a house or a car do not find an immediate relief in financing, even if the central bank – in this case the Federal Reserve – has stopped raising interest rates.
Loans and cards
Credit card holders are among those most affected by the continued high interest, as interest on purchases and withdrawals through it often moves quickly with the change in the cost of borrowing. The American Forbes magazine website estimated the average interest on credit cards in the American market at about 25.3% in its weekly report issued two days ago, and the average interest on accounts holding outstanding balances reached 21.52% in the Federal Reserve data for February 2026.
As for mortgage loans, the Federal Reserve does not directly determine the interest on them, but it influences the general interest environment and investors’ expectations, so real estate loans remain sensitive to its decisions, inflation data, and the labor market. The Associated Press reported that the average 30-year fixed mortgage interest in the United States fell to 6.23% in the week ending April 23, with the market affected by 10-year Treasury bond yields and economic uncertainty.
The difference between low interest and high interest appears in the monthly installment and the family’s ability to bear the loan. High interest reduces the amount that the borrower can afford at the same income, and may force him to reduce the size of the house he wants to buy, and may force him to move away from higher-priced locations or wait until conditions improve.
Savers’ gains
According to the Experian platform, the decision to fix interest brings good news for savings owners who benefit from remaining high returns on deposits, savings accounts, and certificates of deposit compared to periods when interest is low.
According to Experian, reducing interest reduces the cost of debt, but it also leads to a decline in the return on savings, which means that keeping interest at high levels preserves some of these returns for savers.
On the other hand, a rise in interest for the saver does not necessarily mean a real increase in wealth, because inflation may eat up part of the return. If the return on the savings account is less than the rate of price rise (inflation), the purchasing power of the money declines despite the increase in the balance in numbers, so savers usually look at the real return (the return minus the inflation rate).
