How the Federal Reserve’s rate hikes affect your finances

Higher mortgage rates have sent home sales tumbling. Credit card rates have grown more burdensome, and so have auto loans. Savers are finally receiving yields that are actually visible, while crypto assets are reeling.

The Federal Reserve’s move Wednesday to further tighten credit raised its benchmark interest rate by a sizable 0.75 percentage point for a second straight time. The Fed’s latest hike, its fourth since March, will further magnify borrowing costs for homes, cars and credit cards, though many borrowers may not feel the impact immediately.

The central bank is aggressively raising borrowing costs to try to slow spending, cool the economy and defeat the worst outbreak of inflation in two generations.

The Fed’s actions have ended, for now, an era of ultra-low rates that arose from the 2008-2009 Great Recession to help rescue the economy — and then re-emerged during the brutal pandemic recession, when the Fed slashed its benchmark rate back to near zero.

"Most of the effect has yet to be felt and there’s still more interest rate increases probably coming between now and the end of the year," said UC Berkeley Haas Graduate School of Business economist Jim Wilcox. 

In May, a $500,000 home purchase with 20% down, required a monthly payment of $2209. Today that payment is $2594.

In May, a five-year, $35,000 car loan including tax, required a $694 monthly payment. Now, it will be $730. 

Also in May, an average $6200 balance credit card balance with the old interest rate, meant that the monthly interest alone was over $84 a month. Now the interest charge is $88.50.

Even before Wednesday's increase, the University of Pennsylvania Wharton School of Business said because of inflation the average American household is paying $3,500 a year more now than in 2000.

However, the prices in some sectors have already come down.

"We are already seeing signs that the Federal Reserve's monetary policymaking is starting to slow down the economy. So far, it's been in that gentle way that we would hope," said Chairwoman Cecilia Rouse of the U.S.Council Of Economic Advisers.

Regular gasoline prices in the Bay Area have dropped 15% since their mid-June all-time highs.

Today's new car prices are 20% higher than pre-pandemic prices in 2019. And used car price are 30% higher.

"So far, the effects have been constrained mostly to the real estate market. We’ve seen a dramatic slowdown in home sales, in home construction; perhaps a little softening in home prices." said Wilcox.

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