Federal Reserve rate hikes can send shockwaves through stock markets and put many people to sleep. But just because the nitty-gritty of the country’s fiscal policy isn’t exciting to most does not mean we’re unaffected. For example, consumers will pay around $34.4 billion in extra interest charges over the next 12 months due to the Fed’s 500 basis points in rate hikes between March 2022 and May 2023. In addition, if the Fed raises its target rate by 25 basis points on July 26 (97% probability), it will cost consumers another $1.72 billion over the next 12 months. That would bring the annual cost of the Fed’s recent rate hikes to a whopping $36 billion in total.
Below, you can find everything you need to know about Federal Reserve interest rate increases. This includes the odds of a July 2023 rate hike as well as commentary on what that would mean for your wallet. WalletHub also conducted a nationally representative survey to gauge public sentiment about rising rates.
Fed Rate Hike Odds & Predictions
There is a 97% chance that the Federal Reserve will be increasing its target rate in July 2023. Below, you can see what the latest research and experts consulted by WalletHub say will happen.
Fed Rate Hike Probability
Source: CME Group
Fed Rate Hike Impact by Loan Type
Interest rates on financial products, from credit cards to car loans and mortgages, are generally based on some sort of benchmark rate, which in turn is influenced by the Federal Reserve’s target interest rate in one way or another. So when the Fed’s target rises, the interest rates consumers pay also go up, increasing the cost of borrowing. Unfortunately, the rates we earn on deposit accounts aren’t nearly as quick to react.
Below, you can see how Fed interest rate increases have impacted consumers’ finances in the past, as well as how much we can expect a July 2023 rate hike to cost us.
Credit Cards:
The vast majority of credit card rates are variable, tied to the Prime Rate. As a result, we expect to see credit card rates rise the same amount as the Fed’s target.
- A 25-basis point increase (97% probability) will cost credit card users at least $1.72 billion over the next 12 months.
- Due to the 500 basis points in rate hikes between March 2022 and May 2023, credit card users will wind up with at least $34.4 billion in extra interest charges over the next 12 months.
Mortgages:
We don’t expect much of a change in mortgage rates following a July rate hike, as the mortgage markets have already accounted for the move. That’s because mortgages have fixed rates that are priced with a far longer time frame in mind than other borrowing vehicles.
WalletHub’s analysts estimate that the upcoming July rate hike has increased the cost of new mortgages by around 11 basis points, which translates to roughly $11,160 over the life of a 30-year loan, assuming the average home loan of $426,100.
Auto Loans:
- WalletHub expects the average APR on a 48-month new car loan to rise by around 12 basis points in the months following the Fed’s next 25 basis point rate hike.
- For historical context, the average APR on a 48-month new car loan rose from 4.00% in November 2015 to 5.50% in February 2019. That’s a 150-basis point increase in a period characterized by 225 basis points in Fed rate hikes.
Deposit Accounts:
- WalletHub expects little, if any, change in the APYs available from most deposit accounts following the Fed’s next rate hike. Online savings accounts are the exception, as WalletHub projects a 14.6-basis point increase in the average APY following the Fed's July rate hike.
- Online savings account yields increased by an average of 292 basis points from January 2022 to May 2023, despite 500 basis points in Fed hikes during that period. Banks seem quick to pass higher rates to consumers on loans but are not sharing the love on the deposit front.
Interest Rate Change by Account Type (Jan. 1, 2022 to May 4, 2023)
Ask The Experts: Fed Forecasting
To gain a deeper understanding of everything that makes Federal Reserve rate hikes so important, we asked the following questions to a panel of experts. You can check out their bios and responses below.
- Is now the right time for the Federal Reserve to raise its target interest rate?
- How many Fed rate hikes do you believe there will be in 2023? Why?
- Who will benefit most and least from Fed rate hikes?
Ask the Experts
2023 Fed Rate Hike Survey
WalletHub conducted a nationally representative survey to see what people know about Federal Reserve interest rate increases and how they impact our wallets. The survey was conducted online from July 10 to July 14. You can find the complete results in the following infographic.
Key Stats
- Nearly 2 in 3 people say they don’t think inflation will go back to normal in the next 12 months.
- 84% of Americans say they are concerned about inflation.
- 24% of people say they stopped going out to eat because of the inflation, while 21% stopped traveling and 17% stopped shopping.
- More than 3 in 4 people say their wallets have been affected by the Fed raising interest rates (14% more than in May).
- More than 1 in 3 Americans say their job is at risk if the Fed continues to raise interest rates (34% more than in May).
- 66% of Americans say their monthly grocery expenses have been affected by inflation the most, followed by gas (21%) and housing (13%).
- More than 3 in 5 people say Fed rate hikes are forcing them to pay off debt rather than forcing them into more debt.
Full Details Overall
How concerned are you about inflation? | |
---|---|
Concerned | 84% |
Indifferent | 12% |
Not concerned | 4% |
The Fed increased rates by 5% since the start of 2022. Has this affected your wallet? | |
Yes | 77% |
No | 23% |
How do you feel about the Fed raising interest rates again? | |
Upset | 47% |
Unprepared | 25% |
Indifferent | 19% |
Happy | 9% |
Which of your monthly expenses has been most affected by inflation? | |
Groceries | 66% |
Gas | 21% |
Housing | 13% |
Do you think inflation will go back to normal in the next 12 months? | |
No | 63% |
Yes | 37% |
Are you financially prepared for a recession? | |
No | 54% |
Yes | 46% |
Is your job at risk if the Fed continues to raise interest rates? | |
No | 64% |
Yes | 36% |
What have you stopped doing because of inflation? | |
Going out to eat | 24% |
Nothing | 24% |
Traveling | 21% |
Shopping | 17% |
Attending live events | 10% |
Going to bars | 4% |
Are Fed rate hikes forcing you into more debt or forcing you to pay off debt? | |
Paying off debts | 63% |
Getting more debt | 37% |
Has your credit score been affected by inflation? | |
No | 58% |
Yes | 42% |
Note: Percentages may not total 100% due to rounding.
Concerns about inflation
Fed increasing rates have affected people's wallets
Attitude towards the Fed raising interest rates
Affected monthly expenses
Not prepared for a recession
Files for News Use
FED RATE HIKE REPORT
- YouTube (for web embedding)
- Raw video file (for editing into clips)
- Raw audio file (for editing into clips)
WALLETHUB COMMENTARY
WalletHub experts are widely quoted. Contact our media team to schedule an interview.