How the Fed’s Rate Hikes Impact Your Wallet

January 02, 2018

Written by Megan Wade, Public Relations & Community Relations Coordinator

Photo of Federal Reserve building

The Federal Reserve, or the Fed, has raised rates again, and many experts project more rate hikes in 2018. But what does this mean? How does it affect those of us who don’t work on Wall Street? Allow us to help. Here’s what you need to know about the Fed and those rate hikes you’ve heard about.

What’s the Fed? 

Established in 1913, the Federal Reserve System, or the Fed, is the central banking system of the United States. According to its website, the Fed’s main functions are “to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy.” In recent years, they’ve also been charged with regulating banks, providing financial services, and even producing publications about the economy.

Why are they raising the rates? 

As mentioned, a primary purpose of the Fed is to maintain stable prices. During the Great Recession in 2007, the Fed lowered interest rates to encourage consumer spending. Ten years later, the economy seems to be recovering, people are buying more, so the Fed feels it’s safe to now raise interest rates to combat inflation and slow some borrowing.

What does it mean for you? 

As you probably know, when you borrow money from an institution, open a credit card, or take out a mortgage, you don’t borrow that money for free; there is a cost tied to your loan—the interest rate. When the Fed raises rates, the interest on many loans and credit cards also increases. For current, fixed-rate loans, the rate change shouldn’t affect you, but for new loans, mortgages, and credit cards, it will most certainly have an impact.

The Fed raised interest rates three times in 2017, and experts predict a few more rate hikes in 2018. Thus, if you’re planning to borrow any money soon, especially a large sum for a car or a home, this will impact your wallet for the long term. However, a close examination of your finances and thorough research of institutions’ interest rates (because they do differ) could help you save money. And if you’re in the market for a loan or credit card, feel free to browse the competitive options Member One offers.