The Federal Reserve on Wednesday raised its benchmark interest rate by half a percentage point, the most aggressive step yet in its fight against a 40-year high in inflation. “Inflation is much too high and we understand the hardship it is causing. We’re moving expeditiously to bring it back down,” Fed Chairman Jerome Powell said during a news conference, which he opened with an unusual direct address to “the American people.” He noted the burden of inflation on lower-income people, saying, “we’re strongly committed to restoring price stability.” That likely will mean, according to the chairman’s comments, multiple 50-basis point rate hikes ahead, though likely nothing more aggressive than that. The Federal Reserve increased its benchmark interest rate by half a percentage point, in line with market expectations. In addition, the central bank outlined a program in which it eventually will reduce its bond holdings by $95 billion a month. The rate move is the largest since 2000 and is in response to burgeoning inflation pressures. Fed Chairman Jerome Powell underlined the commitment to bringing inflation down but indicated that raising rates by 75 basis points at a time “is not something the committee is actively considering.” Short-term borrowing rates, particularly on credit cards, are set to jump higher. Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark, so expect your annual percentage rate to rise within a billing cycle or two. Credit card rates are currently just over 16%, significantly higher than nearly every other consumer loan and may go as high as 18.5% by the end of the year — which would be an all-time record. Adjustable-rate mortgages and home equity lines of credit are also pegged to the prime rate. Most ARMs adjust once a year, but a HELOC adjusts right away. The average interest rate for a 30-year fixed-rate mortgage hit 5.55% this week, the highest since 2009, and up more than two full percentage points from 3.11% at the end of December.
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