| The Federal Open Market Committee’s expected rate hike this week, which would likely bring the short-term benchmark rate to a range of 1.25 to 1.5 percent, could not come at a worse time, according to a recent WalletHub study.
The personal consumer website calls this a bad time for rate hikes due to the ballooning amount of consumer-held credit card debt. According to WalletHub’s recent credit card debt study in the third quarter of 2017, outstanding credit card debt is likely to cross the $1 trillion mark by the end of the year.
Consumers picked up $22.2 billion in credit card debt in the third quarter, 46 percent higher than the post-Great Recession average. It is also the highest third quarter accumulation since 2007, according to WalletHub.
The expected rate hike would add another $1.46 billion in extra finance charges from the interest rates consumers pay on credit card debt in 2018. The Fed’s four rate hikes since December 2015 already has cost credit card users an extra $6 billion in interest in 2017.
In addition, according to WalletHub, while mortgage and auto loan rates are more difficult to predict because they are longer-term borrowing vehicles with fixed rates, if recent rate hikes are any indication, there will likely be an increase in home-and-auto borrowing costs in the coming months.
While borrowing costs go up after rate hikes, rates on deposit and savings accounts do not react as quick. According to WalletHub, savings account yields have increased by just 19 basis points on average since December 2015, despite 100-basis points in Fed rate hikes since then.
