Inflation continues to rise, and the Federal Reserve has raised its target rate in an effort to keep prices stable. This is a very delicate balancing act: if the Fed slows the economy too much, it could cause prices to fall too quickly and create a recession.
If the Fed raises its target rate, lenders and creditors will raise their rates, too, which affects everything from mortgages to credit cards. This means that people who get loans or credit will pay more than they would have a year ago, and it can also make it more expensive to buy a home or car.
While higher rates mean that it costs more to borrow money, it does have some benefits for consumers, as well. For example, higher interest rates can lead to higher payouts on savings accounts, which can help boost wealth management strategies.
The Fed hasn’t ruled out raising rates again, and it may have to do so several times this year. For this reason, anyone looking to buy a home or take out a loan should act soon. It is also important to pay down high-interest debt, such as credit card bills or auto loans, and to continue to build emergency savings. Fortunately, rates aren’t yet near the historic highs that they reached during the 1980s. The chart below shows the Federal Reserve’s previous rate moves since 1981. Rate increases are shown in quarter-point increments and represent how many basis points (a measure of one percentage point) the target rate has moved up or down.
About the Author
