Effective Sept. 17, 2026, the Federal Reserve (Fed) increased the overnight Federal Funds Rate a quarter-point to 3.75% - 4.00%, the first increase since 2023.
The Fed is trying to reduce inflation. A rate increase will slow consumer and business spending by raising the cost of borrowing, which in turn reduces the demand for homes, cars and other goods and services, which then decreases the costs of those goods. The Fed would like to reduce the inflation rate to 2%, yet it has been higher than that for more than five years.
While an interest rate increase isn’t great news for those borrowing money or paying down credit card debt, the rate hike will likely lead to an increase in the amount of interest earned on savings and certificates of deposit (CDs). Though it’s important to note that, while the Fed doesn't set rates on savings accounts and CDs, past interest rate increases have led to higher rates for savings accounts.
While experts say a single quarter-point increase shouldn’t have a large effect on consumers and businesses, let’s look at a few common borrowing areas.
Mortgage loan rates aren’t directly affected by the overnight Federal Funds Rate but rather follow the yield on 10-year Treasury notes, which of late have been high. As of Sept. 14, they were at 5%, even while Treasury Secretary Scott Bessant ordered a buy back of government bonds to push the rate down.
The high cost of taking out a mortgage loan has driven U.S. home sales down. According to FreddieMac, as of Sept. 17, the average interest rate on a 30-year fixed-rate mortgage is 6.95%.
Most credit cards have variable interest rates that track the prime rate, which is the rate banks charge their best customers. Since the prime rate responds quickly when the Fed raises or lowers its benchmark rate, consumers should see on their statements an interest rate charge increase of a quarter-point.
The Fed indirectly influences auto loan rates by influencing the prime rate. The average cost of a new car rose to $50,089 last month, according to Kelley Blue Book and, per Edmunds, the average loan rate in August was 7% for a new car and 10.6% for a used car.
Many commercial loan rates are variable, reset frequently and are tied to either the prime rate or to SOFR (Secured Overnight Financing Rate), both of which are influenced directly by the Federal Funds Rate.
If you have any questions about the impact of the rate increase to your personal or business finances, please contact your client advisor.
Source: PBS News, Sept. 17, 2026