“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.” FOMC Report

The Federal Reserve raised interest rates 50 basis points (1/2 percent) on Wednesday in an effort to tame inflation that’s soaring at a 40-year high. And, the Fed anticipates that ongoing increases in the target range will be appropriate.

The Federal Open Market Committee (FOMC) is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.

Short-term borrowing was nudged up a half a point, and consumers are going to feel the increase in their bank accounts.With a 50 basis-point interest rate hike, you can expect higher costs for:

• Credit Cards – Your credit card’s interest rate will likely increase slightly within a couple of billing cycles. The size of that increase can vary based on your credit score and credit card provider. A 1% interest rate increase will likely only add a few dollars to your monthly interest payments on a few thousand dollars of outstanding debt. Current average interest rates are close to 16%, but they could be as high as 18.5% by the end of the year.
• Mortgages – Mortgage interest rates are calculated based on multiple factors, like inflation and the housing supply — but they’re also affected indirectly by the federal funds rate, which influences how much banks pay to borrow money. When that rate increases, the interest on adjustable-rate mortgages tends to follow.
• Other loans – The federal funds rate is used to calculate the lowest interest rate offered for loans, known as the prime rate. Any loan tied to the prime rate, known as adjustable-rate loans, will likely have a slight increase in interest rates.

If you currently have a fixed-rate loan, your payments won’t change. If you have an adjustable-rate loan, you should take some time to look at its terms, says Jacob Channel, a senior economic analyst at LendingTree: “The last thing you want is to think, ‘Oh, I have a few months before my rate goes up,’ and realize that the rate hike will kick in much sooner.”

References

1. https://www.federalreserve.gov/newsevents/pressreleases/monetary20220504a.htm
2. https://www.cnbc.com/2022/05/04/3-things-thatll-get-more-expensive-after-the-feds-historic-rate-hike.html