What the Fed's Interest-Rate Hike Means for Your Finances
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Here's your Money Briefing for Thursday, March 17th. I'm J.R. Whalen for The Wall Street Journal. The Federal Reserve's plan to raise interest rates didn't come as a surprise to many people, but a rate hike now, plus potentially several more by the end of the year, will likely have far-reaching effects on your personal finances.
People should be expecting to see sort of a slow ripple effect. So people should just be preparing for that.
Coming up, we'll talk with our personal finance reporter, Julia Carpenter, about specific areas of your finances where you're likely to feel the pinch of higher interest rates, plus what you can do now to get ahead of additional rate increases this year. That's after the break.
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As expected, the Federal Reserve raised interest rates by a quarter percentage point yesterday and plans half a dozen more rate hikes later in the year. The decision has been closely watched and anticipated by Wall Street for months. But what does it mean for you when you, say, take out a mortgage or get back to paying off student loan debt? Here with some answers is WSJ personal finance reporter Julia Carpenter. Julia, thank you so much for being with us.
Thank you for having me.
So, Julia, the Fed raised short-term interest rates yesterday in the most basic terms. What does that mean?
So that means that banks charge each other a certain rate to borrow money, different financial institutions. The Fed is raising rates to prevent inflation from going even higher. And when it does this, it sort of ripples through all other kinds of rates that touch us in a bunch of different products like mortgages, credit cards and more.
OK, yeah. And so help us connect some of the dots here. You know why the rate increase is important to consumers. And I want to start with different kinds of debt that people have. How would the Fed's action affect the interest that people pay on their credit card debt?
So when rates go up, when we see an increase in interest rates, that can sometimes affect credit card annual percentage rate. So we know already that the average annual percentage rate for people with good credit is around 19%. And we've seen that banks are giving people more cards. Banks are sort of loosening the restrictions that they had at the beginning of the pandemic. And we might see rates increase even further as people with maybe lower credit scores or less than perfect credit scores receive more cards. And by the way, that goes for people with existing credit card debt and people applying for new cards as well.
Okay, now I want to go to student loans next. The current suspension of federal student loan repayments is set to expire on May 1st. So how would the rate increase affect borrowers when they resume making their payments?
It depends what kind of loan you have. So for those with federal loans, the interest rate has already been set. It's fixed. So it's set according to the 10-year treasury note auction, and those are fixed for the entirety of the life of the loan.
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