The Federal Reserve is expected to hike interest rates by a quarter of a percentage point Wednesday, from 1.75 to 2 percent.
This is the second increase of 2018. In March, the Fed also raised interest rates by a quarter point, from 1.50 to 1.75. There is expected to be at least one more rate hike this year. If the Fed is confident in the state of the economy, it could hike the rate twice more before the end of 2018.
The Federal Reserve will issue an official statement at 2 p.m. ET. This will be followed by a news briefing by Federal Reserve Board Chairman Jerome Powell at 2:30 p.m. ET.
How does this affect me?
The Federal Reserve’s interest rate hike will raise the rate on everything from credit card interest to mortgages. This hike could add up to an additional $2.2 billion in interest payments on credit cards. The average interest rate on credit cards was 15.32 percent at the end of March. After this rate hike, that rate is expected to rise to 15.57 percent.
Why does the Federal Reserve hike interest rates?
The Fed raises interest rates as confidence in the U.S. economy strengthens. Right now, the gross domestic product is growing, and unemployment is dropping. Raising interest rates when the economy is healthy can fight inflation and lead to a stronger dollar.
The news conference Wednesday with Powell could be part of a new trend. Former Federal Reserve Chairman Ben Bernanke started the policy of holding quarterly news briefings. Powell said that he was “carefully considering” talking to the media and answering questions after every Fed meeting.
“My colleagues and I are committed to communicating as clearly as possible about what we’re doing and why we’re doing it,” Powell said.
This is significant because currently investors and financial experts only expect interest rates to hike after a quarterly news briefing. If the conferences occur more frequently, the Fed would have more flexibility on when it could raise rates.
“I would want to think very carefully about it and make sure that no one would take more frequent press conferences as a signal of the path of policy,” Powell said, addressing this in March.