An interest rate hike happens when the Federal Reserve raises its key lending rates to slow the economy and prevent asset bubbles. It’s a common tactic that’s often difficult to predict, and is driven by global market trends, economic fundamentals, and unforeseen developments.
Interest rate hikes can make it more expensive to borrow for home, auto and other purchases. They can also affect retail prices like gasoline and investment securities. The Fed has long sought to crush surging inflation, and raising rates is a way of doing so.
Rate increases are generally good news for investors who have savings, since higher interest rates boost the returns on investments like certificates of deposit. They can, however, have negative effects for anyone with debt, especially when it comes to credit card balances. Credit card debt payments are a significant portion of many household budgets, and as rates rise, it can make it more challenging for consumers to keep up with monthly repayment obligations.
Generally, the rate hikes announced by the Fed won’t directly affect charges or payment amounts for loans with fixed interest rates, including most auto, student and mortgage loans as well as some credit cards. Cardholders with variable interest rates will experience the impact, however, since those rates are recalculated daily according to two numbers: an index and a margin identified in their loan or cardholder agreements.
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