The Fed announces ninth-straight interest rate hike of 25 basis points—here's what will get more expensive

Federal Reserve Chair Jerome Powell testifies before the Senate Banking Committee March 7, 2023 in Washington, DC.
Win McNamee | Getty

As expected, the Federal Reserve announced another 25 basis point interest rate hike on Wednesday, making the benchmark rate the highest it's been since 2007.

The ninth consecutive rate hike is meant to discourage inflation by increasing the cost of borrowing, which can slow the economy and possibly trigger a recession. In turn, it increases the growing cost of credit cards, auto financing and loans.  

With the move, the central bank has increased the federal funds rate from nearly zero in March 2022 to a range of 4.75% to 5%. 

There was some speculation that the Fed might pause rate hikes in response to recent banking failures, including Silicon Valley Bank. However, Federal Reserve Chair Jerome Powell has repeatedly said that price stability is the central bank's "overarching focus." 

The Fed stays the course on rate hikes

The year-of-year over rate of inflation has slowed to 6%, but it's still above the Fed's preferred rate of 2%. 

Rate hikes are often referred to as a "blunt instrument" because they affect the entire financial system. The effects are also hard to gauge, since it can take many months for a rate hike to be fully absorbed by the economy.

Since each rate hike adds to the risk of a recession, the Fed has slowed its increases somewhat, opting for 25 basis point hikes in February and March instead of the 75 basis point increases it enacted in late 2022. Despite the Fed slowing its roll, Powell has repeatedly said inflation remains a top priority.

"Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run," Powell said in his semiannual report to Congress earlier this month. "The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done."

What will get more expensive with the rate hike

While a 25 basis point change will only slightly increase the cost of loans or debt, the cumulative total of nine straight rate hikes has increased borrowing costs substantially over time. Here's a look at how interest rates have climbed since January 2022.

  1. Auto financing: Interest rates on a five-year car loans have nearly doubled since January 2022, from 3.86% to 6.48%, according to Bankrate data. Alongside rising car prices, many buyers have been priced out of the growing costs of owning a vehicle.
  2. Credit cards: The current annual percentage rate (APR) for credit cards is just over 20%, after climbing steadily from about 16% in early 2022. The latest rate hike will likely push up the average APR slightly, but not above 21%, according to Bankrate.
  3. Student loans: The interest rate on fixed federal loans has climbed from 3.73% to 4.99% in the last year, and will likely rise again for new loans disbursed after July 1.
  4. Variable-rate or new loans: Expect interest rates on loans to climb slightly, although the exact amount will vary by borrower, based on your credit score. Since early 2022, average interest rates for home equity lines of credit (HELOC) have risen from roughly 4% to 7.76% as of last week, according to Bankrate data. Likewise, home equity loans have climbed from 5.96% to about 8% as of last week.

Follow our live coverage of the Fed rate decision today.

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