The Fed Raises Benchmark Interest Rate by Half a Percentage Point
The Federal Reserve is charged with maintaining a stable economy. To do this, the Federal Reserve can either increase or lower the cost of borrowing money. Lower rates generally equate to higher borrowing and more spending by everyone. These lower rates tend to accelerate growth and give a boost to the economy. They allow for an increase in home sales, businesses were able to borrow more for expansion, and so on. On the opposite side, raising the interest rates is a way to help contain inflation. Consumers generally spend less when rates rise.
The half a percentage point rate hike is the most aggressive in more than two decades. The Federal Reserve has also signaled that more hikes are to come.
What does that mean for your wallet?
Credit card interest rates are attached to a financial institution’s prime rate. This prime rate is based on the Federal Reserve’s benchmark rate. As the cost of borrowing money goes up, the financial institution is likely going to pass these costs onto their consumers by way of higher interest rates on lines of credit.
Matt Schulz, a chief credit analyst for LendingTree, recommends calling your card issuer to ask for a lower rate, consolidating and paying off high-interest credit cards, or switching to an interest-free balance transfer credit card. “Now is the time for those with credit card debt to focus on knocking it down, that debt is only going to get more expensive.”
Please reach out to the professionals at the Center for Financial, Legal, and Tax Planning, Inc., at (618) 997-3436 for more information.