Fed rate hike will hit auto loans, new mortgages and credit cards

SALT LAKE CITY – Borrowed money is about to get a little more expensive, as tThe Federal Reserve is expected to raise its key rate by a quarter of a percent on Wednesday.

Raising interest rates is an attempt to slow inflation by first slowing borrowing and spending.

Rising interest rates respond to runaway growth

DMBA-certified financial planner Shane Stewart said it comes after frenetic growth overinflated the economy.

“(The Fed’s decision) is about slowing that down a bit and letting the economy catch its breath,” Stewart said. “So what that means for the average person is that if you’re looking to make a major purchase like a house or a car, the money you borrow will be slightly more expensive.

Stewart said the Fed’s rate hike will ultimately impact everything.

“It takes a while for it to trickle down,” Sewart said. “But it affects just about every industry. Because if people spend less it affects the business and a business may slow down production or not have as many people working for it.

This is why the Fed raises rates little by little over time. This is called a “soft landing”.

“Where the economy has been so high and they’re trying to bring it down with a soft landing, rather than a crash,” Stewart said.

Increases will be most notable in credit card rates, new mortgages and auto loans.

But savings accounts will also undergo a small increase.

“I know the number of these savings rates are increasing incredibly during the pandemic,” Stewart said. “Hopefully we are now getting higher returns on those that follow inflation.”

“And we need to get higher rates of return, because if you don’t have something that keeps up with inflation, you’re safe to go bankrupt,” Stewart said.

The average savings account rate is expected to drop from 0.06% to 0.11% this year, according to Bankrate.

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