What Happens When The Fed Raises Interest Rates?
Impact on Consumer Credit  Consumer credit, like personal loans, lines of credit and credit card, respond more gradually to Fed rate increases. Variable rate loans are particularly sensitive to Fed rate changes as the interest rates they charge are based on benchmarks that reference the fed funds rate. New fixed-rate loans can see higher interest rates, but existing ones are immune to changes to the fed funds rate. For example, between 2004 and 2006, the Federal Reserve raised interest rates 17 times from 1.0% to 5.25% to curb inflation and cool off an overheated economy. Commercial banks raised their rates to 8.25% increasing the cost of borrowing on credit cards and lines of credit. Watch Out for Fed Rate Hikes  Not all Fed rate hikes are going to impact you directly, and not all corners of your financial world are going to be affected by rate changes. But keeping tabs on Federal Reserve monetary policy changes is an important part of keeping your financial life in order.