Fed Rate Hike Sparks Borrowing Costs Rise as Mortgage Rates Hit Near 7%

The Federal Reserve has raised its benchmark interest rate for the first time in three years to combat stubbornly high inflation. The quarter-point increase brings the key rate to about 3.9%, which could lead to higher borrowing costs for mortgages, auto loans, and credit cards.

According to Freddie Mac, the weekly average rate on a 30-year fixed-rate home loan has risen to nearly 7% - its highest level in over 19 months. One year ago, the average rate was 6.26%. This marks the fourth week in a row that mortgage rates have moved higher.

Despite rising costs and borrowing expenses, consumers are showing resilience. Retail sales climbed by 1.2% in August, exceeding economists' expectations of a 0.7% gain. Excluding gas station business, retail sales rose 1.1%. Sales at clothing and accessories stores increased by 0.7%, while furniture and home furnishings stores saw a 0.9% rise.

Unemployment claims fell sharply last week, dropping to 196,000 - the fewest since mid-July. Economists had predicted an increase of 207,500 claims.