Fed Hikes Rate for the First Time Since 2023

The Federal Reserve raised its benchmark interest rate by a quarter percentage point on Wednesday, taking the federal funds target range to 3.75%-4% and raising the costs of taking on debt for consumers.

It's the first rate hike under recently appointed Fed Chair Kevin Warsh and the first since 2023, and it comes as inflation remains stubbornly above the Fed's 2% target. The decision was unanimous.

The Fed's move landed as gas prices continued to climb above $4 per gallon on average, amid continuing escalation of fighting in Iran and U.S. negotiations stalling out.

In a press conference following the announcement, Warsh said, "We cannot affect any individual price, whether it be oil prices, whether it be foodstuffs at the grocery store. But what we can do and will do is ensure that any change in relative prices don't broaden out, don't have second and third order effects on the economy. That's what we're tasked to do and that's what we will do."

What it means for your money

For consumers, higher rates generally mean borrowing gets more expensive and savings may become more lucrative. Here's a rundown:

Interest rates rise on all kinds of financial products. Higher Fed rates can prompt financial institutions to increase the cost of credit cards, auto loans, personal loans and other variable-rate debt. Higher interest rates mean debt can accrue more interest and it makes it harder for people already carrying balances to pay down debt. Mortgage rates might rise, too. Mortgage rates can rise alongside Fed rate hikes, increasing monthly payments and making first-time home buying less affordable. Would-be buyers may stay in the rental market, which could keep rent prices elevated, too. Savers can benefit. Banks may offer higher yields on savings accounts and CDs, providing more opportunity to gain from higher yields.

In other words, higher rates can work for or against you, depending on whether you're buying, saving or both.

The Fed's mandate includes achieving stable prices. Warsh said the people who will benefit most from stable prices are those without financial assets who largely rely on their paychecks to make ends meet.

"In stable prices, an environment where inflation is running consistent with our 2% objective offers good news, because that way when they get their wages, they can put their head above water and deliver real take-home pay increases," Warsh said.

Will the Fed raise rates again this year?

The question now is what comes next. Data reports will continue to guide the Federal Open Markets Committee's upcoming actions.

The dot plot, which reflects FOMC members' expectations about the direction of the target federal funds rate, shows that the majority of members anticipate at least one more 25-basis-point increase this year.

Following Wednesday's decision, futures markets were pricing a 42.2% chance of another quarter-point hike at the Fed's Oct. 27-28 meeting, according to the future's markets CME Group FedWatch Tool. For the central bank's final meeting of the year, Dec. 8-9, markets were pricing 52.8% odds of another hike.

If you want to go deeper into how the rate hike will impact specific financial products, look no further. Our team of writers has you covered:

Why Mortgage Rates Shot Toward 7% Before the Fed Raised RatesWhat the Fed Rate Announcement Means for Savings AccountWhat the 2026 Fed Rate Decisions Mean for CDs

More From NerdWalletShould You Really Try to 'Die with Zero'?Mobile Sports Betting Is Booming — So Is the Debt That Comes With ItShould You Shop Incognito to Get Better Deals? Plus, More September Money Questions

Anna Helhoski writes for NerdWallet. Email: [email protected]. Twitter: @AnnaHelhoski.

The article Fed Hikes Rate for the First Time Since 2023 originally appeared on NerdWallet.

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