Will another Fed rate hike help or hurt? How you may be affected

After a pause last month, experts predict the Federal Reserve likely will raise rates by a quarter of a point at the conclusion of its meeting next week.

Fed officials have pledged not to be complacent about the rising cost of living, repeatedly expressing concern over the impact on American families.

Although inflation has started to cool, it still remains well above the Fed’s 2% target.

Since March 2022, the central bank has hiked its benchmark rate 10 times to a targeted range of 5%-5.25%, the fastest pace of tightening since the early 1980s.

Most Americans said rising interest rates have hurt their finances in the last year: 77% said they’ve been directly affected by the Fed’s moves, according a report by WalletHub. Roughly 61% said they have taken a financial hit over this time, a separate report from Allianz Life found, while only 38% said they have benefitted from higher interest rates.

“Rising interest rates can sometimes feel like a double-edged sword,” said Kelly LaVigne, vice president of consumer insights at Allianz Life. “While savings accounts are earning more interest, it is also more expensive to borrow money for big purchases like a home, and many Americans worry that rising interest rates are a harbinger of a recession.”

Any action by the Fed to raise rates will correspond with a hike in the prime rate, pushing financing costs higher for many types of consumer loans.

Short-term borrowing rates are the first to jump. Already, “the cost of variable rate debt has gone up substantially,” said Columbia Business School economics professor Brett House. And yet, “people continue to consume.”

However, “we are getting closer and closer to the point that those excess savings are going to be exhausted and the effect of those rate hikes may bite quite quickly,” House added.

Here’s a breakdown of five ways another rate increase could impact you, in terms of how it may affect your credit card, car loan, mortgage, student debt and savings deposits.

1. Credit cards

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rises, the prime rate does, as well, and credit card rates follow suit.

The average credit card rate is now more than 20% — an all-time high, while balances are higher and nearly half of credit card holders carry credit card debt from month to month, according to a Bankrate report.

If the Fed announces a 25 basis point hike next week as expected, consumers with credit card debt will spend an additional $1.72 billion on interest this year alone, according to the analysis by WalletHub. Factoring in the previous rate hikes, credit card users will wind up paying around $36 billion in interest over the…