Who Wins and Who Loses When the Fed Hikes Interest Rates?

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The Federal Reserve, commonly called the Fed, is the central banking system of the United States. Created in 1913, the Fed regulates banks, but its primary function is to conduct the nation’s monetary policy and promote healthy economic conditions. Its most potent tool in this mission is its ability to influence interest rates.

The Fed is most likely to flex this power during times of crisis. In March 2020, the Federal Reserve reacted to COVID-19 and a collapsing economy by lowering its benchmark interest rate to zero. In response to dangerously high inflation in 2022, the Fed aggressively raised the rate.

Every time the Federal Reserve interest rates rise and fall, someone benefits and someone suffers. Here’s what you need to know about Federal Reserve interest rates, why they change, how those changes impact the economy and how the next Fed interest rate hike might impact your wallet.

Who Wins and Loses When the Fed Hikes Interest Rates? 

The Fed doesn’t manipulate interest rates to pick winners and losers, but that’s the end result just the same. When the Fed increases or decreases the supply of money in the economy, its action dramatically affects both the interest rates that consumers might pay and the yields they might earn.


Generally, savers tend to win when interest rates increase.

  • Savings accounts and CDs: Rising interest rates are bad for borrowers but great for savers. The Fed raises rates because doing so has the dual effect of discouraging borrowing and encouraging saving, and since they’re not contingent upon creditworthiness, savings accounts and CDs are most sensitive to rate changes. The average savings account rate was 0.06% for most of 2021, but thanks to the Fed’s action, it has nearly quadrupled to 0.24% as of November 2022.
  • The bond market: When interest rates rise, the price of existing bonds falls almost immediately. That’s because issuers want to attract investors in anticipation of new bonds entering the market with higher yields. However, Fed action also has an immediate impact on Treasury yields, which play a key role in the pricing of government, business and mortgage-backed credit.
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On the other hand, anyone who needs a loan is at a disadvantage when interest rates are high.

  • Credit cards: Credit cards are also highly sensitive to the Fed’s actions, because they have variable interest rates. Credit card APRs are directly tied to the prime rate — when it changes, so do cardholders’ APRs.
  • Auto loans and personal loans: Personal and auto loans react more gradually to changes in the federal funds rate, because they are not directly tied to the prime rate. But when rates go up, so, too, will the interest charged for these kinds of loans. Because they are fixed loans, however, your rate won’t change once you lock it in no matter what action the Fed takes.
  • Mortgage loans: Those with existing fixed-rate mortgages will not see their interest rates rise, but homeowners who chose riskier adjustable-rate mortgages (ARMs) are now seeing their monthly payments skyrocket. Dirt-cheap pandemic-era loans contributed to 2021’s historic housing inflation, and rising interest rates are achieving the Fed’s goal of cooling the market. The average 30-year fixed rate is now 6.91% — down a little from more than 7% last month — which is the highest rate in 20 years. The comparatively high cost of borrowing money means that home buyers can afford much less home.
  • The stock market: Although there is not a direct correlation, stocks typically lost value when the Fed hikes rates, because higher interest rates make it more expensive for publicly traded companies to borrow money, expand their businesses and increase their profits.

What Is the Current Federal Reserve Interest Rate?

As of late November, the Federal Reserve interest rate is 3.75%-4.00% — but don’t expect a lender to charge you a rate within that range if you finance the purchase of a house or a car. The Federal Reserve rate, known as the federal funds rate, is the interest rate that credit unions and banks use when lending and borrowing their excessive funds to and from each other.

Banks use the federal funds rate as the basis for their prime lending rate, which is the interest rate they charge their most creditworthy borrowers. The prime rate is the starting point for all other interest rates and the benchmark lenders use when deciding what to charge consumers for financing.

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When the federal funds rate rises, so do the rates that banks charge for consumer financing. 

Typically, the prime rate is the federal funds rate plus three, which means the current prime rate is roughly 7%. 

How Does the Fed Control Interest Rates? 

The Federal Reserve’s Federal Open Market Committee (FOMC) sets the federal funds rate eight times per year at regularly scheduled meetings, but the committee can call emergency meetings during times of crisis to change the rate immediately. 

It’s important to note that the Fed doesn’t have the authority to command banks to charge specific interest rates. Instead, it sets a target rate, which is why the federal funds rate is expressed as a range — currently 3.75%-4.00%. 

Once the FOMC establishes a target rate, the Fed begins leveraging its control over the U.S. monetary system to steer interest rates toward its target. It does this by buying and selling bonds, Treasury bills, repurchase agreements and other government securities to manipulate the supply of available money in the economy, which moves interest rates predictably in one direction or the other.

When the Fed purchases government securities, it injects more money into the economy. That gives more cash to banks, which are then able to lower interest rates to entice new borrowers to take out loans. 

On the other hand, when the Fed sells securities, it removes money from the economy, leaving banks with less cash on hand, and the banks respond by making borrowing more expensive.

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Why Does the Fed Influence Interest Rates? 

The Fed’s primary responsibility is to foster economic soundness by balancing the promotion of both maximum employment and stable prices. Prices have been very unstable for more than a year, with runaway inflation crippling household buying power. The Fed has been aggressively raising rates throughout 2022 in an effort to cool the economy by constricting the money supply. When money is more expensive to borrow, consumers put off purchases, demand falls and prices drop.

But if demand drops too much, businesses lay off workers, unemployment rises, people have even less money to spend and the economy can fall into a recession. When that happens, the Fed lowers rates and makes money cheaper to borrow to get people borrowing and buying again.

What Is the Date of the Next Federal Reserve Meeting in 2022?

The FOMC is scheduled to meet on Dec. 13-14. The meeting, which is part of the Fed’s regularly scheduled itinerary of eight annual sessions, will be the FOMC’s final convention of 2022.

What Is the Federal Reserve Rate in 2022? 

The Fed has been historically aggressive in raising interest rates in 2022. The federal funds rate had been at or below 2.50% since 2008, when the Fed dropped it to zero to manage the economic crisis of the Great Recession. It spent most of the ensuing years below 2% or even 1%. In March 2020, the Fed dropped the rate to zero again to stimulate the economy during the COVID-19 pandemic. 

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But in the spring of 2022, as inflation replaced COVID-19 as the chief economic concern, the Fed began raising the once again in the following increments: 

  • March 17: +0.25%
  • May 5: +0.50%
  • June 16: +0.75%
  • July 27: +0.75%
  • Sept. 21: +0.75%
  • Nov. 2: +0.75%

Will the Fed Raise Interest Rates in 2022?

According to CNBC, there is a widespread expectation that the Fed will announce yet another rate hike during its final meeting of the year in December. Federal Reserve Governor Christopher Waller is on the record as saying that, while he has not yet made a final decision, he is open to a more modest increase of 50 basis points — 0.50% instead of 0.75% like the previous four consecutive increases.

The last two CPI reports have indicated that inflation has finally begun to cool, and the Fed is cautiously optimistic that it can become less aggressive with its rate hikes — it has to balance its goal of keeping prices stable with the danger of triggering a recession if the economy cools too much.


Low interest rates favor borrowers and high interest rates favor savers, so it’s important to keep an eye on the Fed’s action to tailor your financial decisions to the realities of the changing economic climate. But in the end, it is your long-term commitment to responsibly managing your own money — not the Fed’s actions — that will determine your future financial success or failure.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.


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