KNOXVILLE, Tenn. — The Federal Reserve raised its benchmark interest rate on Thursday by another half-percent. The new rate is the highest in 15 years. The higher interest rate means credit card interest will be higher, too.
"That pushes on what we call the discount rate, which is actually set by the banks," said Eric Foster, from Waltman Capital. "Then, in turn, kind of pushes that pressure to the lenders."
Credit card interest rates have increased by about 3% since the beginning of this year, tracking with the interest rates set by the Federal Reserve.
That means anyone planning on putting holiday gifts on credit cards will have to pay more later on as they make payments to put down their debt.
"Those credit card bills are going to come due and they're going to take longer to pay back," said Hoy Grimm, from LeConte Wealth Management.
This year, because of rising prices, Americans are carrying more credit card debt. In the last year, credit card debt increased by around 15% to a 20-year high, according to the Federal Reserve Bank of New York.
The Federal Reserve is increasing rates to control rising prices and keep them from reaching new heights. However, both Foster and Grimm said it's slowing down the economy.
"By raising rates, that cools the economy, and hopefully cools inflation," said Foster.
Grimm said that next year people should expect the economy to slow down and they should expect layoffs to begin.
"Layoffs are starting to increase," said Grimm. "So the question is, how are people going to pay these credit card balances in January if they get one of these layoff notices, too?"
He recommends people go into the new year with little credit card debt.
"You're not going to control if you get a layoff at work, you're not going to control what interest rates do," Grimm said. "Control the one thing you can, that's your own spending."