Federal Reserve rate hikes can send shockwaves through stock markets and put many people to sleep. But just because the nitty-gritty of the country’s fiscal policy isn’t exciting to most does not mean we’re unaffected. For example, consumers will pay around $31.7 billion in extra interest charges over the next 12 months due to the Fed’s 475 basis points in rate hikes between March 2022 and March 2023. In addition, if the Fed raises its target rate by 25 basis points on May 3 (90% probability), it will cost consumers another $1.7 billion over the next 12 months. That would bring the annual cost of the Fed’s recent rate hikes to a whopping $33.4 billion in total.
Below, you can find everything you need to know about Federal Reserve interest rate increases. This includes the odds of a March 2023 rate hike as well as commentary on what that would mean for your wallet. WalletHub also conducted a nationally representative survey to gauge public sentiment about rising rates.
Fed Rate Hike Odds & Predictions
All signs point to the Federal Reserve increasing its target rate by 25 basis points in May 2023. Below, you can see what the latest research and experts consulted by WalletHub say will happen.
Fed Rate Hike Probability
Source: CME Group
Fed Rate Hike Impact by Loan Type
Interest rates on financial products, from credit cards to car loans and mortgages, are generally based on some sort of benchmark rate, which in turn is influenced by the Federal Reserve’s target interest rate in one way or another. So when the Fed’s target rises, the interest rates consumers pay also go up, increasing the cost of borrowing. Unfortunately, the rates we earn on deposit accounts aren’t nearly as quick to react.
Below, you can see how Fed interest rate increases have impacted consumers’ finances in the past, as well as how much we can expect a May 2023 rate hike to cost us.
Credit Cards:
The vast majority of credit card rates are variable, tied to the Prime Rate. As a result, we expect to see credit card rates rise the same amount as the Fed’s target.
- A 25-basis point increase (90% probability) will cost credit card users at least $1.7 billion over the next 12 months.
- Due to the 475 basis points in rate hikes between March 2022 and March 2023, credit card users will wind up with at least $31.7 billion in extra interest charges over the next 12 months.
Mortgages:
We don’t expect much of a change in mortgage rates following a May rate hike, as the mortgage markets have already accounted for the move. That’s because mortgages have fixed rates that are priced with a far longer time frame in mind than other borrowing vehicles.
WalletHub’s analysts estimate that the upcoming May rate hike has increased the cost of new mortgages by around 11 basis points, which translates to roughly $11,160 over the life of a 30-year loan, assuming the average home loan of $437,700.
Auto Loans:
- WalletHub expects the average APR on a 48-month new car loan to rise by around 12 basis points in the months following the Fed’s next 25 basis point rate hike.
- For historical context, the average APR on a 48-month new car loan rose from 4.00% in November 2015 to 5.50% in February 2019. That’s a 150-basis point increase in a period characterized by 225 basis points in Fed rate hikes.
Deposit Accounts:
- WalletHub expects little, if any, change in the APYs available from most deposit accounts following the Fed’s next rate hike. Online savings accounts are the exception, as WalletHub projects a 14-basis point increase in the average APY following the Fed's March rate hike.
- Online savings account yields increased by an average of 267 basis points from January 2022 to March 2023, despite 475 basis points in Fed hikes during that period. Banks seem quick to pass higher rates to consumers on loans but are not sharing the love on the deposit front.
Interest Rate Change by Account Type (Jan. 1 to Mar. 6)
Ask The Experts: Fed Forecasting
To gain a deeper understanding of everything that makes Federal Reserve rate hikes so important, we asked the following questions to a panel of experts. You can check out their bios and responses below.
- Is now the right time for the Federal Reserve to raise its target interest rate?
- How many Fed rate hikes do you believe there will be in 2023? Why?
- Who will benefit most and least from Fed rate hikes?
Ask the Experts
Professor, Kenneth Lay Chair in Economics, College of Arts and Science – University of Missouri
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Georgie G. Snyder Associate Professor of Economics, Rawls College of Business – Texas Tech University and Comparative Economics Research Fellow, Free Market Institute
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Associate Professor, Department of Economics – Towson University
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Associate Professor, Department of Business and Economics – Ursinus College
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Ph.D. – Professor of Economics, MSAE Program Advisor, Department of Economics – Georgia Southern University
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Senior Lecturer and Graduate Teaching Coordinator; Adviser, International Business Society, Department of Economics – University of Georgia
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2023 Fed Rate Hike Survey
WalletHub conducted a nationally representative survey to see what people know about Federal Reserve interest rate increases and how they impact our wallets. The survey was conducted online from April 17 to April 21. You can find the complete results in the following infographic.
Key Stats
- Nearly 7 in 10 people say their wallets have been affected by the Fed raising interest rates.
- 27% more people feel upset about the Fed raising interest rates again, compared to March.
- 71% of Americans say their monthly grocery expenses have been affected by inflation the most, followed by gas (16%) and housing (13%).
- 42% of Americans are very concerned about inflation right now.
- Nearly 4X more Americans aged 18 to 29 say their job is at risk if the Fed continues to raise interest rates, compared to people who are at least 59 years old.
Full Details Overall
| On a scale of 1-10, how concerned are you about inflation right now? | |
|---|---|
| Extremely concerned | 32% |
| 9 | 10% |
| 8 | 15% |
| 7 | 11% |
| 6 | 9% |
| 5 | 6% |
| 4 | 9% |
| 3 | 3% |
| 2 | 2% |
| Not concerned at all | 2% |
| The Fed increased rates by 4.75% since the start of 2022. Has this affected your wallet? | |
| Yes | 69% |
| No | 31% |
| How do you feel about the Fed raising interest rates again? | |
| Upset | 41% |
| Indifferent | 25% |
| Unprepared | 25% |
| Happy | 9% |
| Which of your monthly expenses has been most affected by inflation? | |
| Groceries | 71% |
| Gas | 16% |
| Housing | 13% |
| Do you understand why the Fed raises interest rates? | |
| Yes | 64% |
| No | 36% |
| Are you financially prepared for a recession? | |
| No | 52% |
| Yes | 48% |
| Is your job at risk if the Fed continues to raise interest rates? | |
| No | 75% |
| Yes | 25% |
| Will the Fed’s interest rate hikes affect your summer plans? | |
| No | 54% |
| Yes | 46% |
| Have your 2023 financial plans been affected by the Fed’s interest rate hikes? | |
| Yes | 53% |
| No | 47% |
Note: Percentages may not total 100% due to rounding.
Concerns about inflation
Fed increasing rates have affected people's wallets
Attitude towards the Fed raising interest rates
Affected monthly expenses
Not prepared for a recession
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WALLETHUB COMMENTARY
