If, as expected, the Federal Reserve raises interest rates again this week, data indicates that credit card holders will be among the most affected consumers. Investopedia’s research shows that since the Fed began incrementally increasing its fed funds rate a year ago, credit card interest rates have followed suit. The Fed’s rates have risen from near zero to 4.5%, and in that time, credit card interest rates have increased by more than 13%, from 20.55% in March 2022 to 23.18% in February 2023.
Financial institutions like JPMorgan Chase (JPM) and Citigroup (C) use the Fed’s interest rates as a basis for their prime rates, which are then used to determine rates for credit cards, mortgages, car loans, and other types of credit.
According to CME’s FedWatch tool, which predicts Fed rate hikes based on bond trading activity, the Federal Reserve may raise rates again on Wednesday, most likely by 25 basis points. This would be the ninth rate hike since last year.
The Fed started increasing interest rates a year ago, when it announced its first rate hike since December 2018. The Fed had lowered rates to zero during the Covid pandemic to prevent economic disaster.
However, as businesses resumed operations, prices surged, followed by higher energy prices after Russia’s invasion of Ukraine. These events prompted the Fed to start raising rates in March 2022 to try to slow down price growth.
Since the Fed began increasing rates, American credit card debt has reached an all-time high, peaking at over $930 billion in 2022, according to a report from credit rating agency TransUnion. Interest rates on this debt reached record highs in 2022, as reported by the Federal Reserve.