The Fed's rate hike: What it means to you Jill On Money:

JILL ON MONEY

In a unanimous 12-0 decision, the Federal Reserve raised its benchmark lending rate by a quarter of a percentage point, to a target range of 3.75%-4%. In explaining the first interest rate hike in three years, Fed Chair Kevin Warsh said that, "Inflation is the problem. Stable prices have been the problem for more than five and a half years."

While the inflation rate has improved from the peak seen in the COVID reopening surge, it has remained stubbornly high, running between 3.4 and 3.7%, well above the Fed's 2% target.

While some members on the committee had previously voted for an increase, this time around, there was consensus that the economy, and specifically the labor market, was strong enough to absorb the action.

Economist Guy Berger notes that looking back at what the Fed had expected at the end of last year, "the job market has outperformed by a fairly large amount. They expected unemployment to average 4.4% at the end of 2026; we're now at 4.1%." So, while inflation was the catalyst, an improving labor market allowed the Fed a bit more confidence in taking the leap.

As always, Fed actions have winners and losers. Under the winning camp is the saver. You can still find online interest rates of about 4% for high-yield savings accounts, money market funds, and short-term CDs. If you are new to having extra money for your emergency reserve fund, this is your reminder to move the cash from your checking account, which is still earning peanuts.

Chief among the losers is borrowers, who will continue to struggle under the weight of higher interest rates. According to the most recent government report, average credit card rates are sitting around 21%, auto loans are around 7%, and personal loans are averaging 11.8%.

The Fed doesn't set mortgage rates directly, but the cost to borrow money to finance a home is influenced by the direction of rates. Mortgage rates track the 10-year Treasury yield which has been climbing, mostly due to the fact that the war in Iran has pushed up inflation. The 10-year yield is now hovering around 5%, a level we haven't seen since 2007, outside of the brief 2022 inflation spike. The result is that the average 30-year fixed mortgage rate is hovering just under 7%, and the 15-year is at 6.26%, as of September 17.

Higher rates, along with still elevated prices, have cast a pall over the housing market. According to the Federal Reserve Bank of Atlanta, as of July 2026, a household earning the median income of about $86,500 would need to devote 44% of that income just to carry the mortgage on a median-priced home. Rewind six years, to July 2020, and the median share of income needed was just 28%. The monthly payment on essentially the same house has roughly doubled in six years.

According to Torsten Slok, Chief Economist at Apollo, lack of housing affordability has meant that "the share of first-time homebuyers is at the lowest level in decades, and the median first-time buyer is now 40 years old, up from 30 in 2008." While there may be some who can afford to take the plunge, Slok says "75% of U.S. households can only afford a home priced below $300,000, well under the current median sales price."

While the Fed's quarter-point hike may seem small, its ripple effects - higher borrowing costs, a housing market that's locking out an entire generation of first-time buyers - have left many Americans adrift.

Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check her website at jillonmoney.com.

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