How The Fed’s Interest-Rate Hike Will Affect Consumers

The Federal Reserve’s latest increase in short-term interest rates will have only a modest impact on consumer borrowing costs. But if the central bank continues to push up rates, which seems likely, then consumers should be adjusting their borrowing strategies now to minimize the impact later on.

As expected, the Fed raised its benchmark federal funds rate on Wednesday by a quarter point, to an upper limit of 1.25 percent. That’s still well below the historic average. But every increase in the rate—which is what banks and credit unions charge each other for loans—gets passed on to consumers in the form of higher rates on everything from credit card balances to car loans.

With that in mind, here’s how to prepare for the continued rise in consumer borrowing rates.

Mortgages. If you’re in the market for a new mortgage, or you have an adjustable-rate mortgage, rising interest rates could mean you’ll be paying more on your loan.

Although the Fed’s interest-rate hike doesn’t directly affect mortgage rates, it influences other factors—such as the 10-year Treasury bond—that do affect mortgages.

So what can you do? If you have an adjustable-rate mortgage, you may want to consider refinancing to a fixed-rate loan before long-term rates increase further, says Adrien Auclert, an assistant economics professor at Stanford University. And if you’re thinking of taking out a new fixed-rate mortgage, consider doing it sooner rather than later, when rates may be even higher.

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