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Fed announces another jumbo rate hike. Here's the impact on your finances.

Federal Reserve expected to raise interest rates
Federal Reserve expected to raise interest rates for sixth consecutive time this year 04:46

The Federal Reserve on Wednesday again turned to its most potent weapon for subduing inflation, with the central bank boosting rates for a sixth time in 2022. That means the cost of borrowing will continue to rise for consumers and businesses, an economic pinch that could have a major impact on your finances.

The Fed said it is boosting its benchmark interest rate by 0.75 percentage point on Wednesday, marking its fourth consecutive hike of that size this year. 

Earlier in 2022, the central bank had nudged rates higher by smaller amounts — 0.25 and 0.5 percentage points — but with inflation remaining stubbornly sticky, the Fed is turning to bigger hikes to tame runaway prices. The impact on Americans has been broadly felt, especially at a time when inflation remains high. Mortgages have topped 7% for the first time in two decades, while credit card rates are rising sharply. 

High rates are sending buyers and sellers into mortgage rate sticker shock 02:32

"Unsurprisingly, it's a lot more expensive to borrow than it was even six months ago, and certainly a year ago," Matt Schulz, chief credit analyst at LendingTree, told CBS MoneyWatch. "When you combine that with seemingly everything getting more expensive on a daily or weekly basis, it's been a really tough year on consumers."

It may only get tougher, experts say. 

Here's what to expect after the Federal Reserve's latest rate hike. 

What is the Fed rate hike?

The central bank boosted its benchmark rate by 0.75 percentage point, bringing the Fed's target range to 3.75% to 4%. 

That increase was widely expected by economists — but the bigger question is what the Fed will signal about its course for rate hikes in December and later, according to Oxford Economics lead U.S. economist Nancy Vanden Houten in a research note published before the decision. 

"Some Fed officials have suggested that a slower pace of rate increases is on the horizon," she noted. 

The stock market jumped after the Fed's statement on Wednesday, which hinted that future increases may be smaller than the last series of 0.75-percentage point hikes. 

"In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," the Fed said in its Wednesday statement

What rate hikes cost you

Every 0.25 percentage-point increase in the Fed's benchmark interest rate translates to an extra $25 a year in interest on $10,000 in debt. 

That means the 0.75 percentage-point hike on Wednesday will add an extra $75 of interest for every $10,000 in debt. 

So far, the Fed's five hikes in 2022 have increased rates by a combined 3 percentage points — which means consumers are now paying an extra $300 in interest on every $10,000 in debt. With the additional rate hike on Wednesday, the Fed's benchmark rate means consumers are paying an additional $375 for every $10,000 in debt. 

Credit cards: Highest rate in years

That will translate into a big impact on consumers who are carrying balances on their credit cards. 

Already, credit card rates have jumped in response to the Fed's rate hikes throughout 2022, with the average credit card rate reaching 22.21% in October, according to LendingTree data. That's the highest since LendingTree began tracking rates in 2018, Schulz said.

"Most everybody who has a credit card in this country will see their current card's rate rise within the next month or two after this happens," he noted. 

That won't impact people who pay off their credit card balance every month, but those who carry a balance will see higher interest levied on their accounts. And with inflation still high, more Americans are racking up credit card debt to keep afloat. 

About 6 in 10 credit card holders have been carrying balances on their cards for at least a year, up from 1 in 10 in 2021, according to 

"We have seen card debt grow pretty quickly recently, and that is to be expected because so many people have had to lean on their credit cards more in order to pay for gas or groceries or the central costs of life," Schulz noted. 

I have credit card debt. What can I do?

There are a few options available for people who are carrying credit card debt and facing higher interest from their card issuers, Schulz said. 

The best option is to find a zero-percent balance transfer card, which are still widely available. However, these cards — which allow you to transfer your balance from one card that charges interest to another that charges 0% for an introductory period — are typically only available to people with good credit scores of about 680 or higher, Schulz said. 

Such zero-percent offers typically charge a balance transfer fee of about 3%, but they also provide breathing room over the introductory period of 15 months or longer to pay down the debt. 

Consumers can also call their current credit card companies and ask them for a lower rate, a request that has a surprisingly high success rate, Schulz said. 

"We did a study earlier this year that showed about 70% of people who asked for a lower APR on their card got one, but too few people ever ask," he noted.

How will another hike impact mortgage rates?

Mortgage rates have surged this year in tandem with the Fed rate hikes, with the typical 30-year loan topping 7% last month — more than double the rate available in early 2022.

That translates into very real costs for homebuyers. Take a home that sells for the U.S. median price of $384,800 and that is purchased with a 20% down payment. At the current mortgage rate of 7.16%, a homebuyer would pay roughly $750 more per month than with a loan at 3.2%, the rate earlier this year.

It's possible rates could inch even higher with Wednesday's increase.

Already, the surge in mortgage rates has rapidly cooled the housing market — and economists forecast that it may be in for more turmoil. Housing prices could fall by as much as 20% next year as mortgage rates continue to climb and the housing market normalizes in wake of the pandemic, according to Ian Shepherdson, chief economist with Pantheon Macroeconomics.

Auto loans

Loans for cars are also getting more expensive, even as car prices are going down, according to car shopping app CoPilot. 

The average used car loan rate has increased by 1.2 percentage points from March through October, CoPilot said. That means that the average payment for a used car is about $564 a month, compared with $546 in March, or $1,300 more over the life of the loan. That is offsetting much of the benefit of lower prices, the company said.

And the average rate for a 60-month loan for a new car has jumped to 5.6% at the end of October from 4.9% in August, according to Bankrate.

Savings accounts, CDs

There is one upside to another Fed hike: Higher rates for savings accounts and certificates of deposit. 

Rates for these accounts have risen sharply this year, although they are lagging the pace set by the Federal Reserve — as well as the hikes witnessed in other interest-based products, like mortgages and credit card rates. 

The national average interest rate for savings accounts is 0.16%, according to Bankrate, although online savings banks provide better offers, with top rates at 3% or higher. Meanwhile, some CDs are offering rates at 4% or higher. 

That's certainly better than keeping money in cash, but it's still far below the rate of inflation. With inflation over 8% in September, savers are essentially losing money by socking their cash into a savings accounts that even pays 3%. 

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