Change to federal interest rate has widespread impact

With inflation at a 40-year-high, the Federal Reserve took an aggressive measure to slow down rising costs.
Published: Jun. 15, 2022 at 9:42 PM CDT
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WICHITA, Kan. (KWCH) - With inflation at a 40-year-high, the Federal Reserve took an aggressive measure Wednesday to slow down rising costs. The Fed raised its benchmark interest rate by three-quarters of a percent, the largest increase since 1994. The hike is aimed at making consumers spend less money, leading to a drop in demand that should lower inflation.

The change to the federal interest rate has widespread impact including on credit cards, loans and savings accounts.

To understand what the 0.75% (three-quarters of a percent) increase to the Fed’s benchmark interest rate means, you can consider that for $10,000 worth of debit, it will cost you an extra $75 per year in interest. This is the third and largest interest rate change the Fed has made this year.

“It’s very significant. (As a) matter of fact, the last one was half a percent and that was significant,” Phoenix Financial Group Owner/Certified Financial Fiduciary Shawn Kuntz said of the most recent rate hike.

Kuntz explained that by raising interest rates, this creates a higher price to take on debt and have fewer people that want to take on debt at higher levels.

It’s a move that will touch the wallet. We’re already seeing the impact on mortgage rates, meaning if you’re in the housing market now, you’ll pay in interest on a loan than you would have last year.

“Up until the last couple of years, people were getting as much house as they could because of interest rates,” Kuntz said. “So now, it just really needs to fit in your budget.”

For most, the impact will be on the credit card bill. Kuntz said one way to help yourself is to look around and see where you can find a credit card with lower rates.

“Shop those rates. even though the rates are going up and they’re significant, there’s a lot of companies that have a little bit of lag where the rates don’t go up right away,” Kuntz said. “So you can shop those rates, get them down, and ideally, you want to pay off your high-interest-rate debt.

One thing to keep in mind is a credit card with 0% interest balance transfer if you’re moving from a high-interest card. Overall, Kuntz said this is a good time to look at your budget and investments.

“Retirement assets and portfolio, might be a good idea to stress test that,” he said. “Stress test if the market was to go down 10, 15%, what would that look like?”

When required, Kuntz said making needed adjustments can make a difference

“Cause all this that’s going on, they’re cutting back on vacations, they’re cutting back on big-ticket items, or they’re waiting,” he said.

One place you’ll benefit from the increase in interest rates is on the return for savings accounts and certificates of deposit (CDs). The Fed is indicating more interest rate hikes through the rst of the year, so these impacts will be felt again.

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