Explained: U.S. Feds raises interest rate by 75 bps and its impact on you

The Fellowship of Penny Calling Penny
June 16, 2022
US Federal Reserve Raises Interest Rates
US Federal Reserve Raises Interest Rates

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The U.S. Federal Reserve has hiked its main interest rate by 0.75 percentage points on Wednesday, the largest increase since 1994 to fight the inflation that is running at a 40-year-high.

The move comes after inflation reached a 40-year high and the Feds are aiming to tame the inflation without tipping the economy into a recession.

Federal Reserve Chairman Jerome Powell said the 75-basis-point hike was due in part to the Federal Reserve’s worried about inflation expectations increasing.

“We at the Fed understand the hardship that high inflation is causing. We are strongly committed to bringing inflation back down and we are moving expeditiously to do so,” Powell said in a press briefing on Wednesday.

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So how does the last hike affect you?

The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight.

With the latest hike in the interest rate, you can expect to pay more credit card debt, car loans and student loans as borrowing is likely to get more expensive. When benchmark interest rate rises, credit card interest rates rise too

Consumers can witness the rates rise on their credit card debt within one or two billing cycling as credit card rates are closely linked with the Fed’s action on the interest rate.

Car loans and student loans will also climb. However, the rate increase depends on the type of loan you have or the type of vehicle you are planning to buy.

Fed’s decision to raise key interest rates will also impact the home mortgages. The hike in interest rate will affect the minority of households that take adjustable-rate mortgages. People with home equity lines of credit can expect to see their rate increase by 0.75 percentage points within the next 60 days. The effect on fixed-rate mortgages including the popular 30-year fixed loan is less certain.


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