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 one thing, the Fed’s seven rate hikes since Dec. 2015 have cost credit card users an extra $9.65 billion in interest to date. That figure will swell by at least $1.6 billion this year if the Fed raises its target rate on September 26, as expected. One more rate hike is expected from the Fed in the final quarter of 2018, too.
The rising cost of debt puts a lot of pressure on consumers. For example, it will take the average person in Magnolia, TX nearly 13 years to pay off his or her balance. With that in mind, WalletHub also conducted a nationally representative survey to gauge public sentiment. And while most people still have some homework to do, we’ve got no shortage of opinions.
Below, you can find everything you need to know about Federal Reserve interest rate increases. This includes the odds of a September 2018 rate hike as well as insights on what that would mean for your wallet.
Fed Rate Hike Odds & Predictions
Most signs point to the Federal Reserve increasing its target rate in September 2018. 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, and the overall cost of borrowing do too. 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 2018 rate hike to cost us.
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.
- Another 25-basis point increase will cost credit card users roughly $1.6 billion in extra finance charges during 2018.
- When you factor in the seven previous rate hikes, credit card users will wind up paying around $11.26 billion more in 2018 than they would have otherwise.
If recent rate hikes are any indication, we won’t see much of a change 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 timeframe in mind than other borrowing vehicles.
However, that is not to say that Fed rate hikes don’t make mortgages more expensive for new borrowers. WalletHub’s analysts estimate that this rate hike has increased the cost of new mortgages by around 10 basis points.
- The Fed has cost the average homebuyer ($230,984 loan ) roughly $42,000 since the start of 2015, if you assume the 88-basis point rise in the average APR on a 30-year fixed-rate mortgage from January 2015 to June 2018 is due solely to the seven Fed rate hikes that have occurred since then, as well as the two more expected by the end of the year.
- 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.
- The average APR on a 48-month new car loan rose from 4.00% in November 2015 to 5.05% in May 2018 (the most recent data available). That’s a 105-basis point increase in a period characterized by 225 basis points in Fed rate hikes (actual and expected), plus record auto sales.
- WalletHub expects little, if any, change in the APYs available from deposit accounts following the Fed’s next rate hike. Yields on some types of accounts may even fall temporarily.
- Online savings account yields have increased by an average of 52.5 basis points since December 2015, despite 175 basis points in Fed hikes since then (not including September 2018). 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 (Q3 2015 to Q2 2018)
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.
- Should the Fed be increasing rates or not for 2018? Why?
- How many Fed rate hikes do you believe there will be in 2018? Why?
- Do you think that the new Fed chairman appointed by President Trump will extend current policies? What differences should we expect?
- How might the departure of CFPB Director Cordray influence how banks are regulated, particularly those under the auspices of the Federal Reserve?
Ask the Experts
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 August 30 to September 6. You can find the complete results in the following infographic.
Full Details Overall
Which government entity is in charge of credit scores?
|Department of the Treasury||8%|
|Federal Trade Commission||8%|
|Federal Deposit Insurance Corporation||6%|
|Federal Bureau of Investigation||2%|
|None of the Above||58%|
When the Federal Reserve raises interest rates, it:
|Has no impact on my credit score||70%|
|Hurts my credit score||23%|
|Helps my credit score||7%|
When did the Federal Reserve last raise interest rates?
|I don’t know||46%|
|6 months ago||16%|
|1 year ago||6%|
|5 years ago||6%|
Is it good for the economy when the Federal Reserve raises interest rates?
|I Don’t Know||35%|
Is it good for your wallet when the Federal Reserve raises interest rates?
|I Don’t Know||29%|
Do you think your credit card APR is too high currently?
|It's just right||14%|
Who best knows how to grow the American economy?
|The Federal Reserve||73%|
Should the Fed consider consumers’ credit scores when deciding whether to raise interest rates?
How many credit scores do we each have?
When the Federal Reserve raises interest rates, which of the following become more expensive:
|Cell Phone Bill||1%|