The Federal Reserve's 10th Rate Hike: What It Means for Your Wallet
- Barry B
- May 3, 2023
- 2 min read
The Federal Reserve recently raised the target federal funds rate by 0.25%, marking the 10th increase in the past year. This rapid tightening has significantly impacted consumer borrowing costs, with credit card rates now averaging over 20% and mortgage rates also on the rise. As a Mortgage Loan Officer, I'm here to help you understand how these changes affect your finances.
When the Fed raises interest rates, it impacts various types of loans, including mortgages, credit cards, auto loans, and student debt. Consequently, consumers face higher borrowing costs, which can strain budgets and impact purchasing power. However, higher interest rates also benefit savers, as they earn more on their deposits.
Here's a quick breakdown of how the Fed's recent rate hike affects different types of loans:
Credit cards: Most credit cards have variable rates, which are directly influenced by the federal funds rate. With the latest rate increase, credit card users could pay an additional $1.7 billion on interest.
Home loans: Fixed-rate mortgage rates are not directly affected by the Fed's actions but are influenced by Treasury yields and the economy. Adjustable-rate mortgages and home equity lines of credit, however, are more closely tied to the prime rate, and their rates may increase as a result of the rate hike.
Auto loans: Interest rates on new auto loans are also rising, making monthly payments more expensive for car buyers. The average rate on a five-year new car loan now stands at 6.58%.
Student loans: Federal student loan rates are fixed, so rate hikes don't immediately affect them. However, private student loans with variable rates will see their interest rates increase.
Savings accounts and CDs: Deposit rates tend to correlate with changes in the target federal funds rate. As a result, savers may benefit from higher interest rates on their accounts.
In these uncertain economic times, it's essential to take proactive steps to secure your finances, such as paying down high-interest debt and boosting savings. Should you need assistance or have any inquiries regarding the impact of these changes on your finances, please don't hesitate to reach out to me. I'm always here to help.
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