If the Fed raises its target rate by 25 basis points on July 26 (97% probability), it will cost consumers another $1.72 billion over the next 12 months
WalletHub’s latest Fed Rate Hike Survey gauges consumer sentiment. View the complete survey findings here.
After the Federal Reserve’s 25 basis point rate hike on July 26 (97% probability), the Fed’s target rate will have increased by 5.25% since March 2022, costing people with credit card debt at least $36 billion over the next 12 months, according to a new WalletHub report.
Federal Reserve rate hikes can send shockwaves through stock markets and put many people to sleep. But just because the nitty-gritty of the country’s fiscal policy isn’t exciting to most does not mean we’re unaffected. For example, consumers will pay around $34.4 billion in extra interest charges over the next 12 months due to the Fed’s 500 basis points in rate hikes between March 2022 and May 2023. In addition, if the Fed raises its target rate by 25 basis points on July 26 (97% probability), it will cost consumers another $1.72 billion over the next 12 months. That would bring the annual cost of the Fed’s recent rate hikes to a whopping $36 billion in total.
Fed Rate Hike Survey Key Findings
- Inflation Pessimism: Nearly 2 in 3 people say they don’t think inflation will go back to normal in the next 12 months.
- Inflation Concern: 84% of Americans say they are concerned about inflation.
- Inflation Curbs Spending: 24% of people say they stopped going out to eat because of the inflation, while 21% stopped traveling and 17% stopped shopping.
- Rate Hike Impact: More than 3 in 4 people say their wallets have been affected by the Fed raising interest rates (14% more than in May).
- Job Risk Escalates: More than 1 in 3 Americans say their job is at risk if the Fed continues to raise interest rates (34% more than in May).
- Inflation Hits Groceries: 66% of Americans say their monthly grocery expenses have been affected by inflation the most, followed by gas (21%) and housing (13%).
- Rate Hikes Prompt Debt Repayment: More than 3 in 5 people say Fed rate hikes are forcing them to pay off debt rather than forcing them into more debt.
Projected Impact by Loan Type
A 25 basis point increase in the Fed’s target rate will cost credit card users at least $1.72 billion in the next 12 months. Altogether, the 5.25% increase in rates since March 2022 will cost people with credit card debt a total of $36 billion over the next 12 months.
The Fed’s July 26 rate hike has already increased the cost of the average 30-year mortgage by $11,160 over the life of the loan, as rate hikes are usually priced into mortgage rates in advance.
WalletHub expects the average APR on a 48-month new car loan to rise by around 12 basis points in the months following the Fed’s next 25 basis point rate hike.
Q&A with WalletHub
Do consumers think inflation will go back to normal soon?
“Nearly 2 in 3 people say they don’t think inflation will go back to normal in the next 12 months, according to a new WalletHub survey. The survey also found that 84% of Americans are concerned about inflation right now,” said Jill Gonzalez, WalletHub analyst. “Given people’s pessimistic outlook on inflation, we can expect household austerity measures to continue into the foreseeable future. For example, 24% of people say they stopped going out to eat because of inflation, while 21% stopped traveling and 17% stopped shopping.”
Where are people feeling the pain from inflation the most?
“Roughly 66% of Americans say their monthly grocery expenses have been most affected by inflation, according to a new WalletHub survey. Only 21% of people pointed to their gas bills, followed by just 13% of people saying their housing was most affected by inflation.”
Why should people care about Fed rate hikes?
“Fed rate hikes are the solution to high inflation, even though people often view the hikes as the problem. WalletHub’s new survey found that more than 3 in 4 people say their wallets have been affected by the Fed raising interest rates, which represents an increase of 14% from May,” said Jill Gonzalez, WalletHub analyst. “Similarly, more than 1 in 3 people say their job is at risk if the Fed continues to raise interest rates, and 34% more people feel this way compared to May.”
Is there a silver lining to Fed rate hikes?
“Although Fed rate hikes have increased the cost of debt, the silver lining is that many people are being forced to reconsider their spending habits and reliance on debt. A new survey from WalletHub found that more than 3 in 5 people say Fed rate hikes are forcing them to pay off debt rather than forcing them into more debt,” said Jill Gonzalez, WalletHub analyst. “Fortunately, people looking to get out of debt without paying too much interest have some good options among the best balance transfer credit cards and debt consolidation loans on the market right now.”
