The Federal Reserve on Wednesday lifted its fed funds rate 25 basis points to a range of 1% to 1.25%. It marked the fourth rate hike since the financial crisis.
While the rate hike and the Fed’s plan to shed some of the assets on its balance sheet will have a long-term impact on the economy, there is one short-term impact that will hit your wallet almost immediately.
Most simply, the fed funds rate determines the interest rate at which banks borrow money short term.
Increases are passed on to other borrowers, mostly consumers, through higher rates on things like credit-card debt.
This debt is based on the banks’ prime loan rate, the interest rate used as a starting point for nonmortgage loans.
The Fed’s decision to raise the fed funds rate by 0.25% had an immediate impact on these rates on Wednesday, sending them to 4.25% from 4%, mirroring the magnitude of the Fed’s increase.
And so after what seemed like an arcane and abstract policy change from the Fed on Wednesday, this is the impact that might matter to those who don’t follow the news as closely as they follow their credit-card bill.
Here’s the quick rundown of the changes to prime loan rates — all to 4.25% from 4% — announced at major US banks so far:
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