Federal Reserve leaves rates unchanged. How that affects your money

The Federal Reserve left its target federal funds rate unchanged Wednesday, but did not signal an end to its aggressive rate hike campaign.

For households, that offers little relief from sky-high borrowing costs.

Altogether, Fed officials have raised rates 11 times in a year and a half, pushing the key interest rate to a target range of 5.25% to 5.5%, the highest level in more than 22 years. 

“I’m worried for the consumer,” said Tomas Philipson, University of Chicago economist and a former chair of the White House Council of Economic Advisers. “People are hit on both fronts — lower real wages and higher rates.”

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Since wage growth for many Americans hasn’t been able to keep pace with higher prices, those households are getting squeezed and are going into debt just when borrowing rates are spiking, Philipson said.

Real average hourly earnings fell 0.5% in August, while borrowers are paying more on credit cards, student loans and other types of debt.

“Borrowing is very expensive, period,” Philipson said.

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 borrowing and savings rates they see every day.

Here’s a breakdown of how the central bank’s increases so far have affected consumers:

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

Credit card annual percentage rates are now more than 20%, on average — an all-time high. Further, with most people feeling strained by higher prices, more cardholders carry debt from month to month.

For those who carry a balance, there’s not much relief in sight, according to Matt Schulz, chief credit analyst at LendingTree.

“Even though the Fed chose not to raise rates in September, the truth is that no one should expect credit card interest rates to stop rising anytime soon,” he said.

In the meantime, knocking down that debt “should absolutely be the goal,” he said.

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.

The average rates for a 30-year, fixed-rate mortgage “remain anchored north of 7%,” said Sam Khater, Freddie Mac’s chief economist.

“The reacceleration of inflation and strength in the economy is keeping mortgage rates elevated,” he said.

Other home loans are more closely tied to the Fed’s actions. Adjustable-rate mortgages and home equity lines of credit, or HELOCs, are pegged to the prime rate. Most…