In its last meeting of the year, the Federal Reserve, the Central Bank of the United States, raised the benchmark interest rate on Wednesday, December 14, for the seventh consecutive time, to a range of 4.25% to 4.5%. This is the highest level in 15 years.
The increase is part of the ongoing effort to tame the high inflation of recent months. The American central bank may continue to raise rates next year as well, although at a more modest pace.
This, of course, means higher borrowing costs for consumers. But it also means that their savings may finally start to earn a little money after years of almost nonexistent interest.
“Credit card rates are at a record level and continue to rise. Auto loan rates are at the highest level in 11 years. Home equity lines of credit are at the highest level in 15 years. And the yields on online savings accounts and CDs are not this high since 2008,” said Greg McBride, chief financial analyst at Bankrate in an interview with CNN.
Inflation is finally falling
Consumer prices rose at an annual rate of 7.1% in November, the smallest increase since December 2021.
But inflation remains uncomfortably high. And the consequences may be starting to be felt.
Retail sales fell sharply at the beginning of the holiday shopping season, dropping 0.6% during the month of November, according to data released by the Department of Commerce.
The decline in auto sales helped drive the drop – the largest monthly decline observed throughout the year – but even excluding autos, monthly sales fell 0.2%, despite the reduction in inflation.
Consumer spending has persisted despite inflation, rising interest rates, and fears of a recession. A strong labor market combined with ongoing post-pandemic pent-up demand, falling energy prices, and supply chains returning to normal have helped keep the cash registers ringing.
However, there are signs that this may be changing. The sequence of seven consecutive interest rate hikes to combat inflation may be starting to slow down areas of the economy.