When the Federal Reserve raises interest rates, you’re likely to see a higher rate on your bank deposits. That incentivizes you to save more and invest your money wisely, which is a good thing. But a higher interest rate can also impact existing consumer debt, particularly if it’s tied to an adjustable-rate loan like a mortgage or credit card.
The Federal Reserve raises interest rates to combat inflation, which is a threat to many consumers and businesses. The goal is to prevent prices from rising too fast, which is known as hyperinflation. The Fed’s interest rate increase is expected to impact most American households in different ways, but not everyone will feel the effects right away.
A rate hike won’t affect charges or payments on loans with fixed interest rates, which include most auto and student loans as well as mortgages. The interest rates on most credit cards, however, will go up after a Federal Reserve rate hike. That will make your monthly payments and costs go up, which can have a big impact on your budget.
Historically, a rate hike by the Federal Reserve has had a ripple effect on financial markets in emerging and developing countries. But that hasn’t happened so far this year, according to a new study by Brookings Fellow Sebnem Kalemli-Ozcan and fellow economist Filiz Unsal. They explain in this episode of the Brookings Podcast why they think that improved monetary policy credibility in these economies has made them more resilient to U.S. interest rate trends.