DALLAS, Texas (KRLD) — The U.S. inflation rate is now up to 7.9%, the highest it's been since January of 1982, and is forcing the Federal Reserve to raise interest rates for the first time in three years.
Short-term interest rates are expected to increase by a quarter percentage point by Wednesday, as Federal Reserve Chair Jerome Powell spoke about the plan to curb inflation in the beginning of March.
"With inflation well above 2% and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month," Powell said on March 2. "I would say we will proceed cautiously along the lines of that plan."
"I'm inclined to propose and support a 25 basis point rate hike," Powell added.
Gas prices have soared in recent weeks amid Russia's invasion of Ukraine, causing President Joe Biden to ban all Russian oil imports.
The gasoline index rose 6.6% in February, according to the U.S. Bureau of Labor Statistics. That accounted for nearly a third of the all items monthly increase. Overall, the Consumer Price Index increased 0.8% from January to February.
Beyond filling up at the pump, rising interest rates will affect many things, like the cost of mortgages and credit card rates, although savings account rates and student loan rates aren't expected to see drastic or immediate changes.
The national average for a 30-year fixed-rate mortgage is currently 4.398% according to NerdWallet, a sharp increase from 3.743% on March 1. Back on December 21, the rate was at just 3.072%. Homeowners that have a home equity line of credit will see their rates adjust immediately.
Credit cards are usually on a variable rate, so they won't be affected as much as a mortgage rate when the interest rates go up. The current credit card rate is around 16.34% as of March 10, according to Bankrate.
"A single quarter-point rate increase isn’t likely to flip cardholders’ financial world upside down. However, all rate hikes, even small ones, are unwelcome news for folks with credit card debt," Matt Schulz, chief credit analyst for LendingTree, said, per CNBC.
The price of new vehicles increased by .3% in February, and has gone up a total of 12.3% over the last 12 months. Those looking to buy used cars have dealt with big increases in price, as the used cars and trucks index has gone up by 41.2% in the last 12 month. Although, it did decrease by .2% in Februrary.
Those looking to purchase a new car will have to deal more with increased prices than they are used to, but the rise in federal interest rates likely won't change the auto loan rate. As of Dec. 22, 2021, the average rate for a 36-month term was 3.84% for a new car and 4.28% for a used car, according toBankrate.
What about federal student loans? They are on a fixed rate that is currently at 3.73% for undergraduate students, so most people will not be affected by the interest rate increase. Although if you have a private loan, which could range anywhere from 1% to 13%, then it's possible you will have to pay more in the future.
Savings rates aren't expected to increase with the Fed interest rates, as they currently sit at just an average of 0.06%, per Bankrate. Ken Tumin, founder of DepositAccounts.com, said that "banks have a record amount of deposits" since the beginning of the COVID-19 pandemic, USA Today reported. Therefore, it's unlikely that banks will increase the savings rates.
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