What Borrowers Need to Know about the Fed’s Latest Interest Rate Hike
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Here's your money briefing for Thursday, July 28th. I'm J.R. Whalen for The Wall Street Journal. The Federal Reserve raised interest rates by 0.75 percentage points for the second straight time yesterday. And Fed Chairman Jerome Powell made it clear it won't be the last time. Now, every rate hike makes it more expensive for consumers to borrow money. So, should you tap into your 401k, take a home equity line of credit,
ask yourself, what goal am I accomplishing by borrowing this money? Why do I need it?
Wall Street Journal personal finance reporter Julia Carpenter will run through borrowing choices that people should consider to keep their interest payments in check now and as rates continue to rise to the end of the year. That's after the break.
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What does the Fed’s 0.75% rate hike mean for everyday borrowers?
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The Federal Reserve raised interest rates by three quarters of a percentage point this week, and additional rate hikes could be on the way. That's making it more expensive for consumers to borrow money. So where should consumers look to borrow to ease the burden of interest payments? Wall Street Journal personal finance reporter Julia Carpenter has been talking to financial advisors about this, and she joins me now. Hey, Julia, thanks for being with us.
Thank you so much for having me.
So Julia, the Fed raised short-term interest rates yesterday by three-quarters of a percentage point. Just put that in simple terms for us. What does that actually mean?
So when the Fed raises rates, that means that it's increasing the rate that banks charge each other to borrow money. And we see this in our personal lives, in our household finances, and it has ripple effects in a bunch of different financial products we use. It affects all different kinds of rates that touch us, things like mortgages, credit cards, how much you pay for a refrigerator, all that stuff.
Yeah, and the Fed has raised rates by three quarters of a percentage point two straight times, making it all the more expensive for consumers to borrow money. And there are many reasons why somebody might need to borrow. But in this rising rate environment, what questions should they be asking themselves?
I spoke with Charlotte Galetka. She's a financial advisor based in the Atlanta area. And she said in this environment, the first thing she asked clients is, let's talk about why you're borrowing. What is this helping you to achieve? And I thought that raised a really good point. You know, ask yourself, what goal am I accomplishing by borrowing this money? Why do I need it?
All right.
How should borrowers decide whether they really need to take on debt now?
So let's talk about how these rate increases are hitting consumers. A lot of people are seeing their budget stretched thin and they might need to rely more on their credit cards to cover expenses. How are these rate increases affecting them?
That's definitely something I'm hearing from people a lot, that they need a little bit more wiggle room in their budget just to make ends meet. So credit card rates typically go up when we see the Fed increase rates.
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