Last updated on April 6th, 2023
The Federal Reserve has raised interest rates for the first time in over three years as inflation, and the Ukraine conflict continue to impact financial recovery from the coronavirus pandemic. An increase in interest rates means higher borrowing costs, so consumers and businesses can expect to pay more for car loans, mortgages, and credit card balances.
Federal Reserve FOMC Raises Federal Funds Rate for First Time Since Late 2018
The Federal Reserve’s Federal Open Market Committee (FOMC) ended its two-day meeting Wednesday with an agreement to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The change will see lending rates from banks increase on products like credit cards, mortgages, personal loans, and more.
The rate hike wasn’t unexpected. The FOMC has targeted the spring of 2022 for an interest rate increase for some time, with Federal Reserve Chairman Jerome Powell telling congress that he supported raising the federal funds rate by 0.25%.
This most recent Fed meeting maintained future rate increases, with the FOMC anticipating inflation to return to its 2% target. Some economists have argued for a more drastic rate hike. One FOMC member also supports a 0.5% increase in lending rates.
Inflation Hitting Finances Hard
The interest rate increase by the Federal Reserve follows a trend towards soaring inflation. Consumer prices have increased 7.9% over the past year, the fastest inflation rate in 40 years. According to CCN, prices rose 0.8% in February alone, partly due to the situation in Ukraine.
“The invasion of Ukraine by Russia is causing tremendous human and economic hardship,” the FOMC said in a statement. “The implications for the U.S. economy are highly uncertain, but in the near term, the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”
What Can Consumers Do to Help Save Money?
While lenders are not expected to raise their own interest rates immediately, borrowers should begin to plan for APR increases in the coming weeks. Higher interest rates will make it more expensive to carry a balance on credit cards, making now an excellent time to consider a balance transfer or low APR credit card to consolidate existing balances.
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