How will new interest rates by Federal Reserve impact your financial goals?

For the first time in more than three years, the Federal Reserve raised interest rates by a quarter of a percentage point. 

This comes as policymakers try to control inflation, but it could mean higher borrowing costs.

Whether you're carrying a balance on a credit card, thinking about buying a car or home, or trying to make your money go further, what the Federal Reserve has done with interest rates on Wednesday may have a direct impact on your financial goals.

Announcing the first interest rate hike since 2023, Federal Reserve Chair Kevin Warsh says the decision comes at a time when the economy appears to be strengthening.

"New hiring, private sector earnings, business capital investment each of these markers has improved in recent months and is pointing in a good direction," he said.

At the same time, Warsh said that "Inflation is too high and has been for too long."

So what does the quarter-percentage-point increase, with a new range of 3.75% to 4% in interest mean for you?

According to Chief Multi-Asset Strategist at Morningstar Dominic Pappalardo, with rates going higher, borrowing money will come with a higher rate — meaning interest costs go up, while buying power goes down.

He says for those looking to purchase a new home, the rate hike will impact how affordable the property is.

And when it comes to credit card debt. 

"Obviously, being such a high-interest-rate loan from the credit card company, those should always be paid off as soon as possible by consumers, but again, all these rates tend to move together, so as one goes up, they all tend to move higher," he said.

He adds that despite the increase, it's not necessarily bad news for everyone.

"The offset is for those who have savings. They can also earn a higher interest rate on their savings, which may help offset some of those higher borrowing costs. Again, if they're lucky enough to have some money in savings."

Pappalardo also gave context when comparing the double-digit interest rates in the 1970s and 80s.

"Where interest rates are today, even though it feels high, is very close to the long-run average."

He says don't expect Wednesday's increase to be the last. He says there's already a 40% chance the Federal Open Market Committee could vote to raise rates again in October.