The Federal Reserve (Fed) sets the federal funds rate, which is the interest rate that banks charge each other for overnight loans. This rate is used as a benchmark for other interest rates, including the prime rate. The prime rate is the interest rate that banks charge their most creditworthy customers, such as businesses and individuals with excellent credit.
Credit card interest rates are typically tied to the prime rate. This means that when the Fed raises the federal funds rate, the prime rate also goes up. And when the prime rate goes up, credit card interest rates typically follow.
For example, if the Fed raises the federal funds rate by 0.25%, the prime rate will also go up by 0.25%. This means that if your credit card has a variable APR, the interest rate on your balance will also go up by 0.25%.
The Fed has been raising interest rates in an effort to combat inflation. This means that credit card interest rates are likely to continue to go up in the near future. If you have a balance on your credit card, this could mean that you will pay more interest on your debt.
Here are some things you can do to minimize the impact of rising interest rates on your credit card debt:
- Pay off your balance as quickly as possible.
- Consider a balance transfer card with a 0% APR introductory period.
- Ask your credit card issuer to lower your interest rate.
- Make sure you are making at least the minimum monthly payment.
- By taking these steps, you can help to protect yourself from the financial impact of rising interest rates.
Here are some additional things to keep in mind:
- Not all credit cards have variable APRs. Some cards have fixed APRs, which means that the interest rate will not change over time.
- The Fed does not directly control credit card interest rates. However, the federal funds rate is a major factor that influences these rates.
- The impact of rising interest rates on credit card debt will vary depending on the amount of debt you have, your credit score, and other factors.
The latest Fed interest rate is 5.25% – 5.5%. The Federal Reserve raised the target range for the federal funds rate by 0.25 percentage point in its July 2023 meeting, in line with market expectations. This is the highest level the federal funds rate has been since January 2001.
The Fed is expected to continue raising interest rates in an effort to combat inflation. The next meeting of the Federal Open Market Committee is scheduled for September 2023. It is expected that the Fed will raise interest rates by another 0.25 percentage point at this meeting.
The impact of rising interest rates on the economy is uncertain. Some economists believe that the Fed is raising interest rates too quickly and that this could lead to a recession. Others believe that the Fed is raising interest rates at a pace that is appropriate to control inflation.
Only time will tell what the ultimate impact of rising interest rates will be on the economy. However, it is clear that these rates will have a significant impact on the cost of borrowing money, which could lead to higher mortgage rates, car loan rates, and credit card interest rates.
DO YOU NEED HELP IMPROVING YOUR CREDIT SCORE TO QUALIFY FOR A LOAN OR CREDIT CARD?