How Fed's series of rate hikes could affect your finances

NEW YORK (AP) — The Federal Reserve's move Wednesday to raise its key rate by a half-point brought it to a range of 4.25% to 4.5%, the highest level in 14 years.

The Fed's latest increase — its seventh rate hike this year — will make it even costlier for consumers and businesses to borrow for homes, autos and other purchases. If, on the other hand, you have money to save, you'll earn a bit more interest on it.

Wednesday's rate hike, part of the Fed's drive to curb high inflation, was smaller than its previous four straight three-quarter-point increases. The downshift reflects, in part, the easing of inflation and the cooling of the economy.

As interest rates increase, many economists say they fear that a recession remains inevitable — and with it, job losses that could cause hardship for households already badly hurt by inflation.

Here’s what to know:

WHAT’S PROMPTING THE RATE INCREASES?

The short answer: Inflation. Over the past year, consumer inflation in the United States has clocked in at 7.1% — the fifth straight monthly drop but still a painfully high level.

The Fed's goal is to slow consumer spending, thereby reducing demand for homes, cars and other goods and services, eventually cooling the economy and lowering prices.

Fed Chair Jerome Powell has acknowledged that aggressively raising interest rates would bring “some pain” for households but that doing so is necessary to crush high inflation.

WHICH CONSUMERS ARE MOST AFFECTED?

Anyone borrowing money to make a large purchase, such as a home, car or large appliance, will take a hit, according to Scott Hoyt, an analyst with Moody’s Analytics.

“The new rate pretty dramatically increases your monthly payments and your cost,” he said. “It also affects consumers who...