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Fed Hikes Rates by 25 Basis Points to Combat 3.4% Inflation

By Markets Desk · 2026-09-14 · 1 min read
A traditional wooden gavel resting on a sound block
Illustration: Tradingbird

The Federal Reserve is expected to increase the target federal funds rate by 25 basis points on Wednesday. This move aims to curb persistent inflation, which reached 3.4% in August. Consumers will face higher borrowing costs for credit cards and new loans.

The Federal Reserve is expected to increase the target federal funds rate by 25 basis points on Wednesday. This decision comes as the annual consumer price index stands at 3.4% for August. Rising energy prices and geopolitical tensions have driven these costs higher.

This will be the central bank's first rate hike in over three years. Fed Chairman Kevin Warsh has prioritized returning inflation to the 2% target. The move creates a policy conflict with the administration, which has advocated for lower rates.

Borrowing costs rise for consumers

Credit card interest rates are directly tied to the prime rate. The prime rate typically sits 3 percentage points above the federal funds rate. As the Fed increases its benchmark, credit card APRs will follow within one or two billing cycles.

Mark Zandi of Moody's projects that credit card rates will reach record highs. Current rates already exceed 20%. New auto loan rates are also expected to increase by approximately 12 basis points following this adjustment.

Mortgage rates show mixed signals

The 30-year fixed mortgage rate surpassed 7% last week. This happened as the 10-year Treasury yield touched 4.95%. This yield level is the highest since October 2023. Longer-term loans are influenced more by bond markets than by short-term Fed decisions.

Jeff DerGurahian of LoanDepot notes that mortgage rates may not rise automatically. If the market views the hike as a measured step to control inflation, long-term bond yields could stabilize. This would keep 30-year mortgage rates relatively flat.

Savers benefit from higher yields

Higher interest rates increase the return on savings deposits. Households holding cash or savings accounts will earn more interest income. This provides a partial offset to the increased cost of variable-rate debt. The net financial impact depends on individual balance sheets.

GN markets/inflation (en-US) reports that the Fed aims to cool the economy to reduce price pressures. This strategy typically slows consumer spending and business investment. The goal is to align actual inflation with the central bank's long-term target.

Based on reporting by CNBC, compiled by the Tradingbird desk.

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