Here’s how it could impact you

This week, the Federal Reserve will likely raise rates for the sixth consecutive time to combat inflation, which is still running at its fastest pace in nearly 40 years. 

The U.S. central bank has already hiked its benchmark short-term rate 3 percentage points since March, including three straight 0.75 percentage point increases ahead of its upcoming policy meeting. 

“The impact of what’s been done isn’t fully reflected yet,” said Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business and former chief economist of the Securities and Exchange Commission. “Inflation hasn’t come down much so far, in part because these policies take a while to kick in,” he said.

In the meantime, “the impacts on the consumer have created potentially difficult economic circumstances and are likely to get considerably worse as we get more of these rate hikes kicking in,” he added.

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The next rate hike, which is widely expected to be the fourth straight 0.75 percentage point increase, will correspond with another rise in the prime rate and immediately send financing costs higher for many types of consumer loans.

“The cumulative effect of rate hikes is what is really going to have an impact on the economy and household budgets,” said Greg McBride, Bankrate.com’s chief financial analyst.

In fact, borrowing is already substantially costlier for consumers across the board. 

The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the rates consumers see every day.

From your credit card and car loan to mortgage rate, student debt and savings, here’s a breakdown of some of the major ways rate increases impact you:

Although 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

Along with the Fed’s vow to stay tough on inflation, the average interest rate on the 30-year fixed-rate mortgage is now near 7%, according to the latest data from the Mortgage Bankers Association. 

“Rates resumed their record-setting climb,” said Sam Khater, Freddie Mac’s chief economist, “with the 30-year fixed-rate mortgage reaching its highest level since April of 2002.”

As a result, “demand has completely fallen off the table,” McBride added. “Affordability was strained already from the surge in home prices, when you layer on top of that this never-before-seen pace in mortgage rates it compounds the problem.”