The Fed just marched ahead with an interest-rate hike — here's what the increase means for your wallet

CBS/ The Late ShowFormer Federal Reserve Chairman Ben Bernanke cracked open his wallet for the ‘Late Show’ host Stephen Colbert.
  • The Federal Reserve hiked its fed funds rate by 25 basis points to a range of 2.25% to 2.5% on Wednesday.
  • In response, banks across the US began raising their prime lending rate to 5.5% from 5.25%.
  • This will affect the rates for credit cards and other non-mortgage loans.

Despite attacks from President Donald Trump and wobbles from the financial markets, the Federal Reserve on Wednesday lifted its fed funds rate by 25 basis points to a range of 2.25% to 2.5%. It marked the fourth interest-rate hike this year and ninth since the financial crisis.

While there were concerns over the Fed’s outlook for more interest-rate hikes given some signs of a slowing US economy and the long-term effect of the recent rate-hike cycle, there is another impact that will hit your wallet almost immediately.

Read more:
Fed raises interest rates amid fierce pushback from Trump, signals fewer hikes in 2019

Most simply, it will get more expensive to borrow money. The fed funds rate determines the interest rate at which banks borrow short-term money. Increases are passed on to other borrowers, mostly consumers, through higher rates on things like credit-card debt.

The amount paid on this debt is based on the banks’ prime loan rate, the interest rate used as a starting point for non-mortgage loans.

The Fed’s decision to raise the fed funds rate had an immediate impact on these rates Wednesday, sending them to 5.5% from 5.25%, 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 may 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 5.5% from 5.25% – announced at major US banks so far:

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