Fed Raises Rates: Higher Borrowing Costs Ahead

The Federal Reserve raised its benchmark interest rate to tame inflation and ease economic pressures. The central bank's decision is expected to have far-reaching consequences for consumers, from credit cards and car loans to savings accounts.

The federal funds rate was increased by one quarter percentage point to a target range of 3.75% to 4.0%. This will lead to higher prime rates, which in turn will send financing costs higher for consumer borrowing. Mark Zandi, chief economist at Moody's, noted that wealthier and older households will be less affected by the rate hike, as they are less likely to need to borrow.

Credit card users can expect their APRs to rise within a few billing cycles, with Matt Schulz, LendingTree's chief consumer finance analyst, predicting that cardholders will see an increase of one quarter-point. This may not seem significant, but for those already struggling with debt, it is unwelcome news.

Homeowners with fixed-rate mortgages won't be immediately affected by the rate hike, but new home loans may see mortgage rates tick higher. Adjustable-rate mortgages and home equity lines of credit will be directly impacted by the prime rate increase.