Last week, the Fed's benchmark interest rate was raised by 0.5 percentage points to a target rate range of between 0.75% and 1%.

  • The Federal Reserve on Wednesday, announced the sharpest rise in interest rates in over 20 years.
  • The hike was the largest since 2000 and followed a 0.25 percentage point increase in March 2022
  • Additional rate increases are expected. The Economist Intelligence Unit expects the Fed to raise rates seven times during 2022, reaching 2.9% in early 2023.
  • Starting in June, officials also plan to shrink their $9tn asset portfolio, a policy move that will further push up borrowing costs.

Rates reached their highest peak in October of 1981 at 18.53% [See chart to right] and are still considered to be near historical lows today.

What Is The Cost To You?

Each 0.25% increase adds $25 per year in interest for every $10,000 in debt. A 50 basis point increase translates to an azdditional $50 in interest for every $10,000 in debt.

Economists expect the Fed to continue raising rates after last week’s big hike, forecasting another 50 basis point increase in June, with additional increases to follow later in 2022.

By year-end, the federal funds rate could reach 2% or higher, according to LendingTree Senior Economic Analyst Jacob Channel. That implies a rate increase of about 1.5% from current levels, which means consumers could pay $150 in additional interest for every $10,000 in debt.