Economists expect the Federal Reserve to increase its benchmark interest rate by 0.25 percentage points at its meeting on September 16, marking the first hike in more than three years. The move comes as the central bank continues to grapple with inflation that remains well above its 2% target, driven in part by elevated energy prices.
Details of the anticipated hike
Market‑based indicators from CME FedWatch show roughly a 90% probability that the Federal Open Market Committee will raise the federal funds rate to a target range of 3.75%‑4.0%. The decision is scheduled for 2 p.m. Eastern Time, followed by a press conference with Fed Chairman Kevin Warsh at 2:30 p.m. The same day, the committee will release its quarterly Summary of Economic Projections, offering updated forecasts for inflation, gross domestic product growth and other key metrics.
Since June 2022, when inflation peaked at a 40‑year high of 9.1%, the Fed has delivered 11 consecutive rate hikes that lifted the benchmark from near zero to a 5.25%‑5.5% range by July 2023. After that, the central bank paused, keeping rates steady or cutting them modestly.
What the hike means for borrowers
Credit‑card issuers are likely to pass the higher policy rate onto consumers. Matt Schulz, chief consumer finance analyst at LendingTree, told CBS News that cardholders can expect their annual percentage rates to climb by about a quarter point in the coming months, affecting both new purchases and existing balances. He estimated the increase would add only a dollar or two to monthly statements for those carrying balances, but noted that any rise is unwelcome for debt‑burdened households.
Mortgage rates, which tend to track the 10‑year Treasury yield, may not rise in lockstep. The yield on that benchmark has surged recently as investors weigh the Fed’s inflation‑fighting resolve, but a single 0.25% policy hike could actually help keep longer‑term borrowing costs from climbing further.
Implications for savers and investors
Higher rates also improve returns on cash‑saving products. Schulz said high‑yield savings accounts and certificates of deposit are likely to offer better yields, not at the record highs seen a few years ago but still strong by historical standards.
For equity markets, the reaction may be muted. When the Fed began tightening aggressively in 2022, the S&P 500 fell 18%, but today much of that risk is already priced in. Brandon Zureick, chief economist at Johnson Investment Counsel, cautioned that only an unexpected, much larger move would shock markets.
Investors are advised to maintain diversified portfolios that can endure varied economic environments. Zureick recommended a mix that includes international equities, small‑ and mid‑cap stocks, and increasingly attractive bond holdings as rates rise. He also warned against trying to time market moves, emphasizing steady, long‑term strategies.
Seema Shah, chief global strategist at Principal Asset Management, echoed the view that the debate has shifted from “if” to “how much” tightening is needed. She cited persistent inflationary pressures from the Iran conflict, oil prices above $100 per barrel, and rising costs tied to AI‑related capital expenditures as reasons a single hike is unlikely to be the end of the cycle.
Energy costs remain a key driver. Diesel hit a record $6.27 per gallon on Tuesday, while gasoline rose 18 cents over the past week to $4.33 per gallon, according to the American Automobile Association. If these prices stay high, the Fed could consider additional hikes in the coming months. Conversely, a rapid resolution to the Iran war could ease energy markets and reduce the need for further tightening, Zureick said.
Overall, the expected quarter‑point increase signals the Fed’s continued commitment to taming inflation, even as the policy’s ripple effects are felt across credit cards, mortgages, savings accounts and investment portfolios.
Mitchell Landsberg is a Senior Technology Correspondent at News Raise. He covers consumer electronics, artificial intelligence, software developments, and digital privacy trends.
