Fed Rate Hike: What It Means For RI Mortgages, Car Loans, Credit Cards

The Federal Reserve raised its benchmark interest rate for the first time since 2023 Wednesday, a move that over time could make it more expensive for Rhode Island residents to buy a home, get a car loan or borrow money on their credit cards.

The central bank said its quarter-point increase, which lifts the key rate to about 3.9%, may not be enough to quell stubborn inflation, and another rate hike could be coming later this year. That would boost the short-term borrowing rate to 4.1%.

The ongoing disruptions from the Iran war have pushed up average gas prices, up 7% from a month ago and threaten to spread through the economy and keep inflation high. President Donald Trump’s sweeping tariffs have also contributed to inflation.

Mortgage Rates Average 7%

Importantly, the Fed doesn’t set mortgage rates. The rate does not automatically guarantee an immediate quarter-point increase in mortgage rates. Still, the development is unfavorable for buyers hoping mortgage rates will decline soon.

Rising borrowing costs have stalled the housing market this year. Higher inflation expectations from surging oil prices since the war in Iran began in late February have driven up long-term bond yields, pushing mortgage rates higher. Ahead of the Fed's rate hike, the benchmark 30-year fixed mortgage rate reached an average of 7%.

“That’s because inflation picked up after the oil price shock and continuing concerns about unconstrained inflation,” Lawrence Yung, chief economist for the National Association of Realtors, said in a statement Wednesday. “The whopping, still-growing federal deficit does not help, as more government borrowing means less capital available for the private sector, including for mortgages.”

Mortgage rates could fall if oil prices and federal deficits ease or AI boosts productivity, but for now, 7% is the “new normal,” Yung said.

Lagging Consumer Confidence

Abraham Sarway, a real estate agent with Douglas Elliman in New York City, told Realtor that falling consumer confidence could be the biggest impact of the Fed hike.

“If buyers believe rates will stay higher for longer, they become more deliberate about price, timing, and leverage,” he said. “That can slow transaction volume even if mortgage rates themselves do not move materially, because uncertainty tends to delay decisions before it changes values.”

He doesn’t think the prospect of sustained higher rates will immediately affect home prices but said buyers and sellers both may be hesitant until confidence returns.

Mischa Fisher, chief economist for Zillow, said the Fed’s rate hike restores stability in the housing market in the long run. Lower inflation means mortgage rates can come down, he said.

“Unfortunately, it's going to be a challenged end of the year for home sales before we get there,” Fisher said. “The recent run-up in rates is hitting an already slow housing market, where sales volume has started to decline year over year from an already low baseline.”

What About Credit Card Rates?

Credit card variable interest rates track the prime rate, which adjusts quickly after Fed rate changes. Consequently, Fed policy rapidly impacts credit card rates.

Matt Schulz, chief consumer finance analyst at the online loan marketplace LendingTree, expects cardholders to see quarter-point rate hikes within months.

To handle high living costs, Americans are relying more on credit cards. According to the New York Fed, total balances reached $1.26 trillion in Q2, nearing the $1.28 trillion record from late 2025.

Will Car Loans Go Up?

The Fed indirectly influences auto loan rates by influencing the prime rate. Cars, especially new ones, are already prohibitively expensive. The average cost of a new car rose to $50,089 last month, according to Kelley Blue Book. The average loan rate last month was 7% for a new car and 10.6% for a used car, according to Edmunds. And the average monthly payment, Experian reported, was $765 in the second quarter of 2026.

Do Savers Get A Break?

Most likely. Wednesday’s move probably means interest rates on savings accounts and certificates of deposit are headed higher.

The Fed doesn’t set rates on savings accounts and CDs but it “sets the tone” for them, the credit reporting agency Experian says. When the central bank started raising rates to combat an outbreak of inflation in March 2022, the average rate on a 1-year CD was stuck at a miserly 0.15%, according to FDIC data published by the Federal Reserve Bank of St. Louis. The rate shot up to 1.88% by September 2024 and has remained above 1.5% ever since. It was 1.71% last month.

Online banks and others that offer high-yield savings accounts typically compete aggressively for depositors. (The catch: They sometimes require significantly larger deposits.)

Not ‘A Huge Impact’

LendingTree’s Schulz told The Associated Press that “the reality is that a single quarter-point rate increase isn't really going to have a huge impact. ”

But it would be different if Wednesday’s hike marks the first in a series of rate increases. "When this all becomes impactful to people is when you stack a few of these on top of each other over time, and it adds up to something bigger," Schulz said.

For now, U.S. household debt payments are relatively low overall as a percentage of after-tax income. So even if borrowing rates rise, many households might not feel a heavier debt burden immediately.

“Most Americans are generally doing OK,” Schulz said. “But it wouldn’t take a whole lot for them to not be doing OK. People’s financial margin for error is generally pretty small, and just the rising cost of most everything just squeezes them more and more.”

Nearly half of Americans, both Republicans and Democrats, say affordability issues are a top midterm election concern.

The Associated Press contributed to this report.

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