WASHINGTON, September 16 — The Federal Reserve raised its benchmark interest rate by a quarter-point on Wednesday, the first rate hike since the summer of 2023. The bottom line: borrowing gets more expensive from here, and Fed policymakers signaled Wednesday they expect to hike again this year, to 4.1%. The Fed is the central bank of the United States, charged by Congress with maintaining a stable economy and financial system.
It manages the economy in part by raising and lowering the cost of borrowing money. Rate cuts are intended to encourage more borrowing and spending by people and companies, which tends to accelerate growth and energize economies.
Lower mortgage rates, for example, typically lift home sales, and cheaper borrowing can lead businesses to take out loans and expand and hire. Rate increases work the other way, helping contain inflation as consumers spend less when borrowing costs rise.
What the hike does to borrowers and savers
The hike will eventually mean higher loan rates for many consumers and businesses. Savers, by contrast, will probably earn a bit more interest on their savings. Most credit cards carry variable interest rates tied to the financial institution’s prime rate, the rate banks charge their most creditworthy customers, which is itself based on the Fed’s benchmark rate — the overnight rate banks charge each other to lend money to meet mandated reserve levels.
When benchmark rates rise, banks pay more to borrow and pass those costs to consumers as higher interest rates on lines of credit. A rate hike increases interest rates for cardholders and borrowers with variable APRs by the same amount as the Fed hike, usually within one or two billing cycles.
A quarter-point increase may not spur financial ruin for borrowers with low balances. Those with larger credit debts will feel the impact at a time when the cost of living is already surging. Many Americans coping with the high cost of living are increasingly relying on credit cards to maintain spending.
Total credit card balances hit $1.26 trillion in the second quarter, near the record $1.28 trillion set at the end of 2025, according to the New York Fed. The numbers are not adjusted for inflation.
Credit card interest rates are currently around 19.56%, according to bankrate.com.
Mortgages move to their own beat
The Fed rate’s impact on home loans depends on whether a borrower has a fixed or adjustable-rate mortgage, and even then only slightly, because the Fed rate and mortgage rates are not directly linked. A home loan is a long-term financial product, most commonly a 30-year fixed-rate mortgage, while the Fed rate is for short-term overnight borrowing. Long-term mortgage rates are pegged to yields on government bonds, especially the 10-year Treasury note, according to CNBC.com.
When that rate goes up, the popular 30-year fixed-rate mortgage tends to do the same. Because of persistent inflation, those Treasury notes have been surging, topping 5% for the first time in 19 years due to unease over surging energy prices and massive government debt that continues to grow.
In turn, the average rate for a new 30-year home mortgage has soared to nearly 7%, its highest level in over 19 months, according to mortgage buyer Freddie Mac. “For perspective, a borrower financing the average new mortgage amount of $389,367 at an average APR of 6.78% could see monthly payments increase by approximately $65 if mortgage rates were to move one quarter point higher,” said Michele Raneri, vice president.
Investors will note the figure that matters most in the Fed’s own guidance: 4.1%, the benchmark rate policymakers expect to reach with another hike this year. The next question is whether inflation data between now and then gives them room to follow through.
