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How the Federal Reserve’s Decisions to Raise Rates Impacts You

Justin Estes Updated: June 26, 2023 • 3 min read

For the second month in a row, the Federal Reserve has increased interest rates. This time, it raised them by 75 basis points to combat inflation. What does this mean for you as a consumer? This article will explore how interest rate hikes impact your finances. We'll also look at what you can do to take advantage of rising rates and protect yourself from their negative effects.

What is the Federal Reserve, and what do they do?

The Federal Reserve, or "the Fed" as it's called for short, is the central bank of the United States. It's responsible for setting monetary policy and regulating the banking system. The Fed's primary goals are to promote maximum employment and stable prices. The Fed uses two main tools to achieve these goals: interest rates and reserve requirements.

The Fed can influence interest rates by changing the federal funds rate, the rate banks charge each other for overnight loans. When the Fed raises the federal funds rate, it usually results in higher interest rates across the board, including for mortgages, car loans, and credit cards. This can significantly impact your bottom line since it makes borrowing more expensive.

How do rate hikes impact you and your finances - specifically mortgages, car loans, and credit cards rates

Mortgage rates have risen since the Fed raised rates in June and July. You can expect higher mortgage interest rates if you're in the market for a new home. If you have an adjustable-rate mortgage, your monthly payments could also increase. The Fed's rate decisions also impact car loan rates. If you're looking to finance a new car, you'll likely see higher interest rates on your loan. Credit card rates are usually based on the prime rate, closely tied to the Fed's target rate.

As a result, credit card rates will also go up when the Fed raises rates. While rate hikes can impact your finances in several ways, there is also some upside. For example, rising interest rates mean your savings will grow more quickly if you're saving for retirement. And if you have a fixed-rate mortgage, you'll be shielded from rising interest rates for the life of your loan. Ultimately, the Fed's decisions on interest rates can have a significant impact on your finances. That's why staying informed of their actions and how they might affect you is essential.

Some tips for keeping your finances healthy in a rising interest rate environment

As interest rates rise, so too does the cost of borrowing money. This can ripple effect on the economy, impacting everything from housing costs to the stock market. For consumers, it can be challenging to keep up with the ever-changing interest rate landscape. However, there are some things you can do to prepare for potential rate hikes in the future.

  • First, try to pay down any high-interest debt that you have. This will save you money in the long run and free up more cash flow if rates go up.
  • Second, consider investing in a mix of assets, including both fixed-income and growth investments. This will help to diversify your portfolio and protect against losses if rates rise too quickly.
  • Finally, stay informed about the current interest rate environment and monitor your financial situation closely.

By taking these steps, you can be better prepared for any potential rate hikes in the future.

Final Thoughts

The Federal Reserve's recent decision to raise interest rates by 75 basis points will likely impact consumers. We've looked at how rate hikes can impact mortgages, car loans, and credit card rates and some tips for keeping your finances healthy in a rising interest rate environment. The Fed will likely continue raising rates in the coming months, so consumers must stay informed and prepared.

By taking steps such as paying down high-interest debt, investing in a mix of assets, and staying informed about the current interest rate environment, you can be better prepared for whatever the future may bring.


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Written by Justin Estes