What could happen to credit card rates now that inflation is holding steady?
Summary
Inflation is still high at 3.4%, which may lead the Federal Reserve to raise interest rates soon. Since credit card rates usually follow the Fed’s rate changes, credit card users with debt might see higher costs if rates go up.Key Facts
- Inflation was 3.4% in August, matching July’s rate but slightly above what experts expected.
- Core inflation (which excludes food and energy prices) rose 0.3% from July, faster than the previous month.
- The Federal Reserve aims to lower inflation to 2%, but current numbers remain too high.
- Most credit cards have variable rates tied to the prime rate, which usually moves with the Fed’s rate changes.
- After the inflation report, the chance of a Fed rate hike in September increased from 70% to 90%.
- If the Fed raises rates, credit card interest rates (APRs) are likely to increase soon after.
- Higher APRs mean carrying a balance will cost more in interest, making it harder to pay off debt.
- Even if the Fed doesn’t raise rates, credit card rates are expected to stay high for now since inflation is still above target.
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