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What Fed Rate Moves Mean for Your Money

The sharp rise in rates since 2022 has been good for savers, bad for borrowers

spinner image The Federal Reserve building in Washington, D.C., looking up at the eagle statue on top.

The Federal Reserve kept interest rates unchanged again March 20, as recent data shows that inflation isn’t whipped quite yet.

The Fed left its target for the key federal funds rate, which influences everything from car loans to savings accounts, at between 5.25 percent and 5.5 percent.

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“The Fed continues to signal that it will be ‘slower to lower’ rates, meaning that the first [quarter-point] cuts will start in June or July (rather than March or May) and continue quarterly, totaling 75 [percentage points] by year-end,” says Sam Stovall, chief investment strategist for CFRA, an investment research firm.

In 2022 and 2023, the Fed raised rates repeatedly to slow the economy and reduce inflation. When it’s more expensive to borrow money, businesses and consumers are less likely to spend as much of it. That, in turn, slows growth and demand.

So far, the strategy has worked – somewhat. The consumer price index (CPI), the government’s chief measure of inflation, clocked a 3.2 percent increase during the 12 months ended February, down from 9.1 percent in the 12 months ending in June 2022. Although that’s a big decrease in the rate of inflation, prices tend to fall much more slowly than they rise, and many items, particularly food and gasoline, haven’t returned to pre-pandemic prices. Overall, the CPI has jumped 21 percent since the pandemic started in March 2020.

The Fed is aiming to keep inflation at 2 percent, as measured by the core Personal Consumption Expenditures (PCE) index, which strips out volatile food and energy components. The PCE rose 2.8 percent in the 12 months ended January – still above the Fed’s target.

Still, the Fed has signaled plans for rate cuts, not hikes, in 2024. For the first time in years, savers can get a positive return from their investments after inflation. When inflation was soaring, the combination of low interest rates and rising prices meant that savers effectively lost money after inflation. Here’s more on how the rate changes can affect you and your money.

Happy days for savers

Although the Fed’s rate hikes have cooled the economy, they have been a gift to savers. After the Fed dropped rates to near zero at the onset of the pandemic, the most savers could get from a bank certificate of deposit (CD) was a thin smile from a teller. 

No longer. Some banks and credit unions are offering as much as 5.5 percent on a one-year CD, according to That’s $550 on a $10,000 deposit. Similarly, some ultrasafe, short-term Treasury securities are also offering yields as high as 5.5 percent. And a few online banks are paying a bit above 5 percent interest on savings accounts with no minimum balance.

Still tough times for borrowers

​For those shopping for a new home, rising rates have been as welcome as a family of raccoons in the attic. A 30-year fixed-rate mortgage is now averaging 6.74 percent, up from a low of less than 3 percent in 2020 and 2021 but down from nearly 8 percent a few months ago. 

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The monthly principal and interest payment on a 30-year, $300,000 mortgage loan at 6.74 percent is $1,944, up from $1,265 at 3 percent.

Car loan rates have jumped, too. The interest rate for a person with a good credit score on a new car loan now averages 7 percent, according to Nerdwallet.

How do higher rates fight inflation?

Inflation is caused, in part, by an economy that’s running hot. It’s also caused by supply chain problems, as many of us discovered during the COVID-19 pandemic. When there’s more demand for goods than industry can produce, prices rise. 

Rising interest rates slow the economy and tamp down demand. Companies have to pay higher interest rates on their loans, for example, which reduces earnings and could prompt layoffs to keep the company in the black. Since March 2022, the Fed has raised interest rates 11 times.

Higher rates also slow the housing market, an important driver of the economy. For example, when you buy a first home, you often have to make trips to the hardware store (among other stores) and that, in turn, stimulates the economy. When the housing market slows, so do sales at hardware stores.

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