Fed rate hike will likely push borrowing costs on credit cards, mortgages -- but benefit savers

The Federal Reserve just raised the cost of borrowing money — bad news for borrowers, good news for savers. Bad news for borrowers, good news for savers. The Federal Reserve raised its benchmark interest rate Wednesday for the first time since 2023 in an effort to quell stubbornly-high inflation, a move that could spur a sharp response from the White House.

WASHINGTON (AP) — The Federal Reserve just raised the cost of money — bad news for borrowers, good news for savers. The Fed increased its benchmark interest rate Wednesday by a quarter-point, the first rate hike since the summer of 2023. The hike will likely make it even costlier to borrow for homes, autos and other purchases.

But if you’ve been socking money away, you’ll probably earn a bit more interest on your savings. The increase boosts the Fed’s target rate to a range of 3.75% to 4.00%. Here’s what to know: Why is the Fed raising rates?

Inflation has remained above the Fed’s 2% target for more than five years. The Labor Department reported Friday that consumer prices rose 3.4% in August compared to a year earlier, while the monthly increase quadrupled from July to hit 0.4%. The Fed’s goal is to slow consumer and business spending by raising the cost of borrowing, thereby reducing demand for homes, cars and other goods and services, eventually cooling the economy and reducing upward pressure on prices.

Kevin Warsh, Fed chair since May, has assured Congress that central bank policymakers “have no tolerance for persistently elevated inflation.” Which consumers are most affected? Anyone borrowing money to make a sizable purchase, such as a home, car or large appliance, will likely take a hit eventually. The new rate will also increase monthly payments and costs for any consumer who is already paying interest on credit card debt.

Then again, said Matt Schulz, chief consumer finance analyst at the online loan marketplace LendingTree, “the reality is that a single quarter-point rate increase isn’t really going to have a huge impact.” But it would be different if Wednesday’s hike marks the first in a series of rate increases. ”When this all becomes impactful to people is when you stack a few these on top of each other over time, and it adds up to something bigger,” Schulz said. household debt payments are relatively low overall as a percentage of after-tax income.