Here's what the Fed interest rate hike means for you

NEW YORK (AP) — The Federal Reserve raised its key rate by a quarter point Wednesday, bringing it to the highest level in 15 years as part of an ongoing effort to ease inflation by making borrowing more expensive.

The rate increase will likely make it even costlier to borrow for homes, autos and other purchases. But if you have money to save, you’ll probably earn a bit more interest on it.

The latest rate increase is smaller than the Fed's half-point rate hike in December and its four straight three-quarter-point increases earlier last year. The slowdown reflects the fact that inflation, while still high, is easing, and some parts of the economy seem to be cooling.

But it's still an increase, to a range of 4.5% to 4.75%. And many economists say they still fear that a recession remains possible — and with it, job losses that could cause hardship for households already 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 6.5% — a figure that reflects a sixth straight monthly slowdown but still uncomfortably high.

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 in the past that aggressively raising rates would bring “some pain” for households but said 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 likely take a hit. The new rate will also increase monthly payments and costs for any consumer who is already paying interest on credit card debt.

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