An Interest rate hike is a big deal for anyone who has borrowed money. It affects borrowers in many ways, including the cost of purchasing items with debt and the monthly payments that come along with it.
Interest rates are a factor for anyone who takes out mortgages, car loans and credit cards. They can also impact borrowers who are planning for large purchases. If you’re considering a new home, car or even a vacation, higher interest rates can impact the total price tag. They can also cause you to rethink your plans or delay the purchase for another season.
Rising interest rates are usually a result of inflation. In the United States, the Federal Reserve has raised rates multiple times this year to try to combat surging inflation and prices. As rates rise, they discourage spending and encourage saving.
A rate hike has ripple effects that touch most Americans. The federal funds rate, or fed rate, is the amount that financial institutions charge each other to borrow money overnight. When the Fed changes this rate, it impacts the banks, credit unions and consumers who take out loans and put money in savings accounts.
The Federal Reserve has been raising its benchmark rate in recent months to curb inflation and slow the economy. It will likely raise its rate again later this year and possibly in 2023. That may cause household finances to tighten up, but it could also provide relief for heavily indebted households.