The Fed Controls the Price of Money. Here's Why That Hits Your Wallet
Bottom line
One decision by 12 people can raise your car loan payment by $87 a month.
In this guide
What it is
The Federal Reserve is the central bank of the United States. the institution that controls how expensive or cheap it is to borrow money across the entire economy.
By the numbers
When the Fed raised its benchmark interest rate (the rate banks use to price loans) from near 0% to 5.25% between 2022 and 2023, the monthly payment on a $30,000 car loan jumped from roughly $503 to $590. an extra $87 every month for the same car.
How it works
The Fed sets a target for the federal funds rate, which is what banks charge each other to borrow money overnight. Banks then pass that cost on to you. so when the Fed's rate goes up, your credit card APR (annual percentage rate, the yearly cost of carrying a balance), mortgage rate, and auto loan rate all go up too.
The catch
The Fed does not set your mortgage or credit card rate directly. banks choose their own rates. But banks almost always move in lockstep with the Fed, so the practical effect on your bills is nearly identical to if the Fed controlled your rate outright.
What to check next
Look up the current federal funds rate, then compare it to the APR on any loan or credit card offer you have received recently to see how closely they track.
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