How a Fed increase could affect credit card debt, auto loans

May 3, 2023 -NEW YORK (AP) — The Federal Reserve has raised its key interest rate yet again in its drive to cool inflation, a move that will directly affect most Americas.

On Wednesday, the central bank boosted its benchmark rate by a quarter-point to 5.1%. Rates on credit cards, mortgages and auto loans, which have been surging since the Fed began raising rates last year, all stand to rise even more. The result will be more burdensome loan costs for both consumers and businesses.

On the other hand, many banks are now offering higher rates on savings accounts, giving savers the opportunity to earn more interest.

Economists worry, though, that the Fed’s streak of 10 rate hikes since March 2022 could eventually cause the economy to slow too much and cause a recession.

– Fed is set to raise rates yet again. After that, then what?
– How will we know if the US economy is in a recession?
– Bank rates are up. How to avoid leaving money on the table

Here’s what to know:

WHAT’S PROMPTING THE RATE INCREASES?

The short answer: inflation. Inflation has been slowing in recent months, but it’s still high. Measured over a year earlier, consumer prices were up 5% in March, down sharply from February’s 6% year-over-year increase.