Fed Rate Hike Sparks Concerns Over Affordability as Mortgage Rates Reach Nearly 7%

The US Federal Reserve raised its benchmark interest rate for the first time in three years to combat stubbornly high inflation. The key rate is now at around 3.9%, which could lead to higher borrowing costs for mortgages, auto loans, and credit cards.

The Fed also signaled that it may raise the rate again later this year, potentially reaching 4.1%. This move comes as Americans are already struggling with high costs for groceries, gas, and housing, making affordability a major concern ahead of the midterm elections.

Mortgage rates have been rising for months, with the average 30-year fixed-rate home loan rate climbing to nearly 7%, its highest level in over 19 months. The benchmark rate rose to 6.95% from 6.76% last week, and borrowing costs on 15-year fixed-rate mortgages also increased.

Retail sales did see a slight increase in August, with consumers stepping up their spending at a better-than-expected pace. However, the rise was largely driven by online retailers, which saw a 2.6% gain, while sales at clothing and accessories stores were only up 0.7%. Unemployment claims also fell to their lowest level since mid-July.