What Fed’s latest interest rate hike means for you
NEW YORK — The Federal Reserve raised its key rate by a quarter point Wednesday, bringing it to the highest level in 15 years as part of an ongoing effort to ease inflation by making borrowing more expensive.
The rate increase likely will make it even costlier to borrow for homes, autos and other purchases. But if you have money to save, you’ll probably earn a bit more interest on it.
The latest rate increase is smaller than the Fed’s half-point rate hike in December and its four straight three-quarterpoint increases earlier last year.
The slowdown reflects the fact that inflation, while still high, is easing, and some parts of the economy seem to be cooling.
But it’s still an increase, to a range of 4.5 percent to 4.75 percent. And many economists say they still fear that a recession remains possible — and with it, job losses that could cause hardship for households already hurt by inflation.
Here’s what to know:
What’s prompting hikes?
The short answer: Inflation. Over the past year, consumer inflation in the United States has clocked in at 6.5 percent— a figure that reflects a sixth straight monthly slowdown but still uncomfortably high.
The Fed’s goal is to slow consumer spending, thereby reducing demand for homes, cars and other goods and services, eventually cooling the economy and lowering prices.
Fed Chair Jerome Powell has acknowledged in the past that aggressively raising rates would bring “some pain” for households but said that doing so is necessary to crush high inflation.
Who is most affected?
Anyone borrowing money to make a large purchase, such as a home, car or large appliance, will likely take a hit. The new rate will also increase monthly payments and costs for any consumer who is already paying interest on credit card debt.
Credit card rates?
Even before the Fed’s latest move, credit card borrowing rates had reached their highest level since 1996, according to Bankrate.com, and these will likely continue to rise.
There are also signs that Americans are increasingly relying on credit cards to help maintain their spending.
How are savers affected?
The rising returns on highyield savings accounts and certificates of deposit (CDs) have put them at levels not seen since 2009, which means that households may want to boost savings if possible.
Home ownership?
Last week, mortgage buyer Freddie Mac reported that the average rate on the 30-year mortgage dipped to 6.13 percent from 6.15 percent the week prior.
A year ago, the average rate was much lower: 3.55 percent.
Sales of existing homes have declined for 11 months as borrowing costs have become too high for many who are already paying much more for food, gas and other necessities.
Buying a car?
With shortages of computer chips and other parts easing, automakers are producing more vehicles. Many are even reducing prices or offering limited discounts. But rising loan rates and lower used-vehicle trade-in values have erased much of the savings on monthly payment.