Fed Raises Rates Quarter Point As Inflation Remains Elevated
By CU Today Staff —
WASHINGTON—The Federal Reserve raised interest rates by a quarter percentage point Wednesday, lifting its benchmark federal funds rate to a range of 3.75% to 4% as policymakers responded to inflation that remains above the central bank’s 2% goal.
The Federal Open Market Committee approved the increase unanimously, 12-0, saying economic activity continues to expand at a “solid pace,” domestic spending has remained resilient and productivity growth and capital investment are strong. The Fed also said job gains have kept pace with growth in the workforce and the unemployment rate has changed little. “Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2% goal. The Committee will deliver price stability,” the FOMC said.
For consumers, the increase is likely to show up most quickly in variable-rate debt, including credit cards.
“The Federal Reserve's decision to raise interest rates by a quarter percentage point reflects its continued focus on addressing persistent inflation. While inflation has moderated from peak levels, it has remained elevated enough to prompt additional action from the Federal Open Market Committee. At the same time, labor market conditions have remained relatively resilient with unemployment rates holding steady in recent months, providing the Fed the confidence to raise rates at this time,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.
TransUnion estimated a consumer carrying the average second-quarter 2026 credit card balance of $6,610 at a 22% APR could see minimum monthly payments rise by $1.38 as higher rates are passed through.
“While the near-term impact on minimum monthly credit card payments may be relatively small, higher borrowing costs can add up over time, particularly for consumers carrying larger balances or making only minimum payments. As a result, reducing revolving debt remains one of the most effective ways to limit the impact of rising rates,” Raneri said.
The effect on mortgages is less direct because mortgage rates are driven by the bond market as well as Fed policy. TransUnion estimated that a borrower financing the average new mortgage amount of $389,367 at an average 6.78% APR could see the monthly payment increase about $65 if mortgage rates rise a quarter percentage point.
“Given that bond yields continue to face many of the same pressures that drove this latest rate increase, we will be closely monitoring how that market responds in the coming weeks and whether mortgage rates see an uptick as well,” Raneri said.
America's Credit Unions Chief Economist Curt Long noted the FOMC raised rates for the first time in over three years and signaled that more hikes are in store.
"Sixteen of the 18 committee projections anticipated at least one additional increase to the fed funds rate by December as the Federal Reserve attempts to rein in inflation. While the committee’s statement pointed to 'geopolitical developments' as a partial cause, inflation has remained above the Fed’s inflation target for over five years," Long said. "Rising interest rates will further dent affordability in the near term, but credit unions remain committed to offering the lowest rates in the marketplace. A typical subprime consumer stands to save $6,500 over the life of a car loan by borrowing from a credit union."
Originally reported by CU Today.