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What the Fed’s most recent rate hike means for your money



In its last meeting of the year, the Federal Reserve Open Market Committee (FOMC) announced its seventh rate hike in an effort to tame inflation—raising interest rates by 50 basis points, or half a percentage point.

“The Federal Reserve remains committed to raising rates until inflation slows down,” says Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. “However, there may be signs that previous rate hikes are beginning to take effect, and this may represent the beginning of a new, more moderated phase in the Fed’s fight against inflation.”

While this is a smaller increase, compared to the four consecutive 75-basis point increases that preceded it, the Fed noted that inflation is still running high and additional increases may be necessary in the new year: “The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.” 

4 money moves you should make after this recent rate hike

While the Fed’s recent hike doesn’t directly impact consumers, it does indirectly influence the rates banks set on consumer products. 

“A higher federal funds rate means banks’ borrowing costs are greater,” says Dan Tolomay, Chief Investment Officer of Trust Company of the South. “This gets passed on to consumers in the form of higher interest rates on things like auto loans and mortgages.” 

If you’re wondering how you should be navigating your finances after this recent hike, you might consider the following strategies. 

Pay down your high-interest debt 

High-interest debt can not only cost you tons in interest the longer you carry it, but get in the way of hitting other financial goals. And when the Fed raises rates, you could see an increase in your interest rates. 

“Annual percentage rates (APRs) on credit cards will rise quickly, which will make it more expensive to carry a balance,” says Tolomay. “Similarly, home equity lines of credit (HELOCs), which usually have variable rates, will become more expensive. Holders of adjustable-rate mortgages (ARMS) may see their rates adjust upward.” 

Make a plan to reduce or eliminate your debt. Some borrowers prefer to tackle their debt head-on by attacking their highest-interest balance first. This is known as the avalanche method. Others prefer small wins to keep the momentum going until they’ve paid off all of their debt (the snowball method). The best strategy for you will depend on what you can stick to long-term. 

Shop for a new savings account 

The Fed raising rates isn’t all bad news—especially for savers. The APY on your savings account will likely increase alongside the federal funds rate. If you’re shopping for a new account to park your savings in, exploring your options after a recent hike could help you score a higher APY and help your balance grow even faster. 

The most recent rates from the Federal Deposit Insurance Corporation (FDIC) puts the national savings APY average at 0.24%, although banks set their own rates and you can likely secure a much higher APY by shopping around. 

Avoid making any sudden investing moves 

Anytime rates change, you could see positive and negative stock market swings. Higher interest rates tend to negatively affect earnings and stock prices and investors might be tempted to panic sell as a result. Higher rates can imply higher borrowing costs for companies, which can impact company earnings and make investors less optimistic about a company’s profits. 

If you’re investing for a goal that is still years down the line, you may want to ride out any short-term market bumpiness. Timing the market is a risky move and panic-selling could work against you by incurring even greater losses once that stock bounces back. 

Work on boosting your credit score 

Lenders rely heavily on your credit score and the information contained in your credit report to determine whether or not they want to give you the financing you need for bigger purchases like your home or car. Similar to savings accounts, scoping out the different financing rates available to you can also help you save if a major purchase is on the horizon, and a higher credit score could mean more favorable terms. 

Take stock of your credit score and the information in your credit report that could be helping or hurting your score and make a plan to improve it if it’s not quite where you want it to be. 

Some of the key ways to improve your score include: 

  • Paying bills, debt, and other monthly payments on time each month. 
  • Keep a low credit utilization ratio—that’s the number you get when you divide your balances by your credit limits. Most experts suggest keeping this to 30% or less. 
  • Be selective about new credit applications. Too many new applications in a short amount of time can hurt your score. 
  • Make it a habit to regularly review your credit report for errors. False or inaccurate information can drag down your score significantly. Catching an error early on and disputing it with the credit bureaus immediately can ensure that it’s dealt with and removed from your report in a timely manner. 

“While rates will rise broadly, it can be helpful to shop around for financing,” says Tolomay, “New car buyers can compare dealership terms to other lenders, for example. A mortgage broker can help compare rates and terms across lenders and help potential homebuyers lower their costs.” 



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