The Federal Reserve is about to raise interest rates – again. Here’s what that means for your wallet.

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

The central bank is expected to raise its benchmark interest rate by 0.5 percentage points on Wednesday, which would mark its seventh consecutive hike this year, according to economists polled by FactSet. There are signs that its highest inflation campaign in four decades is paying off, with the consumer price index last month hitting its slowest rate of inflation since December 2021.

Yet, despite the gradual slowdown in the CPI, inflation remains historically high, with price up 7.1% last month of a year ago. In order to tame runaway prices, the Fed is raising the cost of borrowing, which in theory should deter consumers and businesses from buying — and this slowdown in demand should in turn dampen inflation.

But by increasing the cost of borrowing, this effort has made it more expensive for consumers to take out loans and maintain a balance on their credit cards.

“The cost of borrowing is much more expensive than a year ago,” said Matt Schulz, chief credit analyst at LendingTree. “The best thing for people to do is when they’re setting their budgets and estimating their expenses, they have to assume that prices are going to keep going up and interest rates are going to keep going up as well.”

Economists expect the Fed to continue raising rates in 2023, although rate hikes are expected to taper off as inflation declines.


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

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Read on to find out how the upcoming Fed rate hike could affect your money.

What will the Fed say about rates?

Economists expect the central bank to raise its benchmark rate by 0.5 percentage points, bringing the Fed’s target range to 4.5%, according to FactSet.

But investors and economists will listen Wednesday for hints from Fed Chairman Jerome Powell on the potential pace of rate hikes next year, as well as the position of decision makers on the rate of inflation. Another area of ​​concern is whether the Fed sees an economic slowdown or recession ahead.

“[T]’Cumulative increase to date ranks among the most aggressive increases since the 1980s,’ noted Lawrence Gillum, fixed income strategist for LPL Financial, in a research note. “Despite assurances of an unwavering commitment to reduce inflationary pressures, the Fed will ‘pivot’ or ‘pause’ and cut rates in 2023 and 2024.”

Impact on borrowers

Every 0.25 percentage point increase in the federal funds rate translates to an additional $25 a year in interest on $10,000 of debt.

Before 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 start of the year, or $375 in additional interest for every 10,000 $ of debt.

Assuming an additional 0.5 percentage point rise this week, Americans would have to pay an additional $425 in interest for every $10,000 in debt.

Impact on credit cards

A decision by the Fed to further raise its short-term interest rate would mean higher APRs on your credit cards, Schulz said.

Consumers “will see their credit card’s APR increase by that amount by 50 basis points over the next billing cycle or two,” he predicted. Already, the average APR on a new credit card offer is over 22%, Schulz noted.

It won’t impact people who pay off their cards each month, but Americans who keep a balance could face high interest charges. One of the best ways to deal with a balance is to get a zero percent balance transfer card, which allows you to transfer your balance from one card that charges interest to one that charges 0% for an introductory period.

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

Impact on mortgage rates

Earlier this year, mortgage rates climbed in tandem with the series of Fed rate hikes, topping 7% for a traditional 30-year loan, more than double the rate in January.

But mortgage rates have trended lower in recent weeks. This is because lenders are anticipating fewer Fed rate hikes in the coming months, according to D. Brian Blank, assistant professor of finance at Mississippi State University, in The Conversation.


The 30-year fixed mortgage rate rises to its highest level in two decades

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Mortgage rates could continue to fall, especially given November’s better-than-expected inflation report, Jacob Channel, senior economist at LendingTree, noted in an email.

“We could end the year with rates around 6% – or potentially even lower – if the inflation numbers are very encouraging,” he said. “That said, there’s no guarantee as to where the rates will end up.”

Impact on savings accounts and CDs

If there’s a benefit to higher interest rates, it’s that they mean better returns for savers.

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

Online banks offer best rates, with the average online savings account now earning 3.02%, he added. At the same time, the average yield on online 1-year CDs now stands at 4.15%.

Yet with inflation still above 7%, this means that savers continue to lose money by putting their funds in accounts carrying 3% or 4%.

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