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The Federal Reserve is set to raise interest rates again. Here’s what it means for your wallet.

With inflation still high, though cooling, the Federal Reserve is expected this week to revisit its most effective weapon in its fight against rising prices: another rate hike.

The central bank is expected to raise its benchmark interest rate by 0.5 percent on Wednesday, according to economists surveyed by FactSet, which would mark its seventh consecutive increase this year. There are some signs that his campaign against the hottest inflation in four decades is paying off, with the Consumer Price Index last month coming in at the slowest rate of inflation since December 2021.

Yet despite gradual slowing in CPI, inflation remains historically high Prices rising 7.1% Last month a year ago. To control runaway prices, the Fed is raising borrowing costs, which should theoretically keep consumers and businesses from making purchases — and a slump in demand, in turn putting the brakes on inflation.

But that effort has made it more expensive for consumers to borrow and carry balances on their credit cards, by raising the cost of borrowing.

“The cost of borrowing is much more expensive than it was a year ago,” said Matt Schultz, chief credit analyst at LendingTree. “The best thing for people to do is to assume that when they’re doing their budgeting and estimating what their spending will be, it’s to assume that prices will continue to rise, and interest rates will continue to rise.” “

Economists expect the Fed to continue raising rates in 2023, although rate hikes are expected to slow as inflation eases.


The Federal Reserve is expected to raise interest rates again this week

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Read on to learn how the Fed’s next rate hike could affect your money.

What will the Fed say about rates?

According to FactSet, economists expect the central bank to raise its benchmark rate by 0.5 percent, hitting the Fed’s target range of 4.5%.

But investors and economists will be listening for signals on Wednesday from Fed Chair Jerome Powell about the likely pace of rate hikes next year, as well as attitude of policy makers At the rate of inflation. Another point of concern is whether the Fed sees an economic downturn or recession ahead.

,[T]The cumulative increase among the most aggressive since the 1980s, Lawrence Gillam, fixed income strategist for LPL Financial, said in a research note. The Fed will ‘pivot’ or ‘pause’ further rate cuts in 2023 and 2024.

impact on borrowers

Every 0.25 percentage-point increase in the federal funds rate translates into an additional $25 per year in interest on $10,000 in loans.

Prior to Wednesday’s rate hike, the Fed had already raised rates six times this year, for a total increase of 3.75 percentage points since the beginning of the year, or an additional $375 in interest for every $10,000 in loans.

Assuming an additional 0.5 percent increase this week, Americans would pay an additional $425 in interest for every $10,000 in debt.

credit card effect

Schulz said a move by the Fed to raise its short-term interest rate further would mean a higher APR on your credit card.

“Consumers will see their credit card APR increase by a 50 basis point amount within the next billing cycle or two,” he predicted. Already, the average APR on new credit card offers exceeds 22%, Schulz noted.

This won’t affect people who pay their cards in full each month, but Americans with balances could face hefty interest charges. One of the best ways to deal with balances is to get a zero-percent balance-transfer card, which allows you to transfer your balance from a card that charges interest to a 0% charge for an initial period. does.

Many of these cards are still available, Schulz said. Another option is to call your credit card companies and request a lower rate, which issuers are often willing to grant, he said.

effect on mortgage rates

Earlier this year, mortgage rates rose in tandem with the Fed’s series of rate hikes, peaking at more than 7% for a 30-year conventional loan — more than double from January.

But there has been a downward trend in mortgage rates in recent weeks. That’s because lenders expect fewer Fed rate hikes in the coming months, according to D. Brian Blank, assistant professor of finance at Mississippi State University in The Conversation.


30-year fixed mortgage rate is back at two-decade high

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LendingTree senior economist Jacob Channel noted in an email that mortgage rates could continue to slide down, especially given November’s better-than-expected inflation report.

“If the inflation data is very encouraging, we could end the year with rates around 6% – or potentially even lower,” he said. “At the same time, there is no guarantee of where rates will end up.”

Effects on Savings Accounts and CDs

If there is an upside to higher interest rates, it means better returns for savers.

“Although deposit account rates have lagged behind increases in the federal funds rate, deposit rates are rising to levels not seen in more than a decade,” Ken Tumin of DepositAccounts.com said in an email. “Further deposit rate increases are likely as the Fed continues to raise rates.”

online banks are offering best ratesWith the average online savings account now yielding 3.02%, he said. Meanwhile, the average online 1-year CD yield is now 4.15%.

Yet, with inflation still running above 7%, that means savers are still losing money by putting their money in accounts earning 3% or 4%.

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