As the Federal Reserve raised interest rates by half a percentage point, many Americans are wondering how this move affects their wallets.
This increase puts the federal funds rate at nearly 1%, up from 0.33%—the highest level since March 2020. The Bureau of Labor Statistics (BLS) announced in May 2022 that consumer prices increased 8.3% for the year ending in April 2022. Prices of restaurants and meals eaten away from home were up almost 7% from last year, while grocery prices grew 10%, according to the U.S. Department of Agriculture.
The Fed anticipates the federal funds rate will reach 1.9% by the end of 2022, and 2.8% by the end of 2023. That may not sound like much, but it can significantly affect consumer spending and borrowing. Fed Chairman Jerome Powell’s aim in raising rates by the largest single rate increase since 2000 is to fight inflation, but without triggering a recession. There are signs in the cooling housing market and volatile stock prices that this task will prove difficult. The 30-year mortgage rate is already pushing 5% as home prices cool off in multiple metros.
To explain the different ways this will trickle down to everyday household budgets, PennyWorks compiled a list of five ways inflation is affecting interest rates. Data sources include the Federal Reserve, Reuters, and The New York Times.