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Another Fed Rate Hike? 7 Ways the Fed’s Decisions Affects Your Wallet

Empty Wallet to show how the fed rate hike will affect your walletA Fed rate hike from tops economic news this week

The Fed rate hike that was anticipated became a reality when newly appointed Federal Reserve Chairman Jerome Powell announced a modest benchmark interest rate hike of between 1.5 percent and 1.75. The recent $1.5 trillion tax cut and $300 billion spending bill, along with an improved economic outlook means The Fed may have to raise rates faster than it had planned to prevent the economy from overheating.
If you google “another Fed rate hike,” you’ll see lots of stories on the subject. I’ve combed through them all to share with you 7 ways you’ll feel the central bank’s sixth rate hike since late 2015:

  1. Prices of everyday goods

Indirectly, the Fed’s actions will impact the prices you pay at the grocery store, the gas pump and just about everywhere. Why? Because when money is cheap and plentiful, there’s more demand, which makes prices rise.

  1. Jobs and wages

The Fed indirectly affects the job market. When America experiences a Federal fund rate hike, Americans can expect the rise to slow our economy. That means fewer people will be hired around the country. It also means this is not a good time for employees to ask for a pay raise.

  1. Credit card rates

Most credit cards charge variable interest rates that are tied to the prime rate, which is about 3% above the Federal funds rate. When the Federal funds rate changes, the prime rate does too, and credit card rates follow suit.

  1. CD yields

You can expect CD rates to track the Federal funds rate and follow the short-term interest rates. That means individuals should focus on the real rate of return on CDs, after inflation is considered.

  1. Auto loan

Economists say the rate the Fed sets ends up affecting almost everything in our economy, including trickling down to medium-term fixed loans such as auto loans. That’s because lenders price auto loans relative to the prime rate. The prime rate moves up and down in sync with the Federal funds rate.

  1. Mortgages

Homeowners are not entirely shielded from the impact of a Fed rate hike. Whenever the central bank makes borrowing costlier for commercial banks, those institutions have an incentive to pass those costs on to customers.

  1. Home equity lines

Home equity lines of credit, HELOC, are linked to the prime rate. When the Fed raises its target rate, home equity line rates follow. The sooner you pay off variable-rate debt, the better.
Experts say while a Fed rate hike will likely impact the purchasing power of first-time home buyers and people who need significant financing, they’re not likely to have any real impact on high-net-worth luxury buyers. That being said, if you’re listing your property in Montecito, Hope Ranch or any of Santa Barbara’s upscale communities, give me a call at 805.886.9378 or email me at I have access to high-net-worth luxury buyers looking to own a piece of the coveted Santa Barbara lifestyle.

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