WASHINGTON, September 24 — The Federal Reserve raised its benchmark interest rate by a quarter-point on Wednesday, the first rate hike since the summer of 2023, lifting the target rate to a range of 3.75% to 4.00%. The bottom line: borrowing gets more expensive for homes, autos and other purchases, while savers likely earn more on savings accounts and certificates of deposit. Inflation is the stated rationale.
Consumer prices rose 3.4% in August compared with a year earlier, the Labor Department reported Friday, and the monthly increase quadrupled from July to hit 0.4%. Inflation has now run above the Fed’s 2% target for more than five years.
Fed chair Kevin Warsh, in office since May, has assured Congress that policymakers “have no tolerance for persistently elevated inflation.” The mechanism is deliberate. By raising the cost of borrowing, the Fed aims to slow consumer and business spending, reduce demand for homes, cars and other goods and services, and eventually cool the economy enough to ease upward pressure on prices.
What it means for borrowers and savers
Matt Schulz, chief consumer finance analyst at the online loan marketplace LendingTree, cautioned against reading too much into one move. “The reality is that a single quarter-point rate increase isn’t really going to have a huge impact,” he said. But, he added, “when this all becomes impactful to people is when you stack a few these on top of each other over time, and it adds up to something bigger.” For now, U.S. household debt payments remain relatively low overall as a percentage of after-tax income.
Savings rates are a different story. The Fed does not set rates on savings accounts and CDs, but it “sets the tone” for them, according to the credit reporting agency Experian.
When the Fed began raising rates in March 2022 to combat inflation, the average rate on a 1-year CD was 0.15%, per FDIC data published by the Federal Reserve Bank of St. Louis. It rose to 1.88% by September 2024, has stayed above 1.5% since, and stood at 1.71% last month. Online banks offering high-yield savings accounts typically compete aggressively for depositors, sometimes requiring significantly larger deposits.
Mortgage rates do not directly follow the Fed. They tend to track the yield on 10-year Treasury notes, which topped 5% on Monday for the first time since 2023 amid unease over surging energy prices and growing government debt.
Yields kept rising despite an intervention after Treasury Secretary Scott Bessent ordered the U.S. to buy back government bonds in a bid to push yields down. The rate on the benchmark 30-year fixed-rate mortgage rose to 6.76% last week, the highest in more than 14 months, according to mortgage buyer Freddie Mac. The high cost of home loans is already weighing on housing.
The Realtors association reported last week that sales of previously occupied U.S. homes dropped for the third straight month in August, the slowest pace in more than a year. Adjustable-rate mortgages could rise to price in a Fed hike. But many homeowners locked in low rates when COVID-19 sent borrowing costs tumbling.
The National Association of Realtors reports that nearly half of mortgages outstanding were locked in at 4% or lower and almost a fifth at 3% or lower in the first three months of 2026.
Credit cards and auto loans
Most credit cards carry variable rates that track the prime rate, which responds within a month to Fed moves. Boston Fed researchers wrote in March that Fed policy changes “flow through to credit card rates rapidly.” Schulz reckons most cardholders will see rates rise by a quarter-point over the next couple of months. Total credit card balances hit $1.26 trillion in the second quarter, near the record $1.28 trillion set at the end of 2025, according to the New York Fed.
The Fed indirectly influences auto loan rates through the prime rate. The average cost of a new car rose to $50,089 last month, according to Kelley Blue Book.
The average loan rate last month was 7% for a new car and 10.6% for a used car, according to Edmunds, and the average monthly payment was $765 in the second quarter of 2026, Experian reported. Schulz said “most Americans are generally doing OK,” but warned the margin is thin. “It wouldn’t take a whole lot for them to not be doing OK,” he said.
“People’s financial margin for error is generally pretty small, and just the rising cost of most everything just squeezes them more and more.”
Investors will note the Fed’s next move is now the question. The figure that matters is whether the August inflation reading proves a blip or the start of a trend that forces policymakers to stack another hike on top of this one
