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 $36.7 billion in extra interest charges over the next 12 months due to the Fed’s 525 basis points in rate hikes between March 2022 and July 2023. In addition, if the Fed raises its target rate by 25 basis points on September 20 (7% probability), it will cost consumers another $1.75 billion over the next 12 months. That would bring the annual cost of the Fed’s recent rate hikes to a whopping $38 billion in total.
Below, you can find everything you need to know about Federal Reserve interest rate increases. This includes the odds of a September 2023 rate hike as well as commentary on what that would mean for your wallet.
Fed Rate Hike Odds & Predictions
There is a 7% chance that the Federal Reserve will be increasing its target rate in September 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 September 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 (7% probability) will cost credit card users at least $1.75 billion over the next 12 months.
- Due to the 525 basis points in rate hikes between March 2022 and July 2023, credit card users will wind up with at least $36.7 billion in extra interest charges over the next 12 months.
Mortgages:
We don’t expect much of a change in mortgage rates following a September 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 September rate hike has increased the cost of new mortgages by around 11 basis points, which translates to roughly $10,800 over the life of a 30-year loan, assuming the average home loan of $413,100.
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 16.1-basis point increase in the average APY following the Fed's September rate hike.
- Online savings account yields increased by an average of 338 basis points from January 2022 to July 2023, despite 525 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, 2022 to Sep. 4, 2023)
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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