MARY LOUISE KELLY, HOST:
The cost of borrowing money is going up. The Federal Reserve voted today to raise its benchmark interest rate for the first time in three years. Board chairman Kevin Warsh said at today's press conference they are raising rates to tamp down on more than five years of inflation.
(SOUNDBITE OF PRESS CONFERENCE)
KEVIN WARSH: The plain fact is that inflation is too high and has been for too long.
KELLY: So what does this mean for your wallet? Here to break it down are NPR personal finance reporter Stephan Bisaha and NPR senior national political correspondent Mara Liasson. Hi you two.
MARA LIASSON, BYLINE: Hi there.
STEPHAN BISAHA, BYLINE: Hello.
KELLY: Hi. So a rate hike - it's a quarter percentage point. That does not sound like a huge amount. Stephan, kick us off. What will this mean for all of us, for consumers?
BISAHA: Yeah. Near term, it means the cost of borrowing is about to get a little more expensive. That includes mortgages, which they're not directly connected interest rates, but they are influenced by them. Your standard mortgage has been climbing close to 7%, and this could push us past that point sooner rather than later. The more direct connection is with your credit card. So any new debt you put on that credit card, you'll likely have to pay more in interest on that debt. And any current debt that you already have, you'll have to pay more interest on that, too.
KELLY: More interest - how much more?
BISAHA: Honestly, it's not a lot more. I was talking with one of the finance experts at LendingTree about this and was told, you know, today's rate hike is not going to rock anyone's financial world. Like, by their math, if you have about $7,000 in credit card debt, this rate hike will mean paying only a few bucks more each month.
Remember, that the Fed today, they only raise interest rates by a quarter of a percentage point. They also projected another similar rate hike this year, though that depends on how the economy's looking. These are all fairly modest moves, and on their own, it shouldn't cause much harm to people's finances.
KELLY: Mara, fairly modest move, Stephan just said. But politically, high costs are not fairly modest at all.
LIASSON: No. They are the No. 1 issue for voters. Voters tell us in every poll and every focus group that the cost of living is their No. 1 concern. You can't eat GDP. And for a very long time, we had this long, stable period of low interest rates and low inflation, but not recently. And the economy and voters fears for their futures, for their kids' futures are having a real impact on how they're thinking. We know from the past that inflation defeats presidents, defeats incumbents. That's why President Trump has been asking the Fed to cut rates for a year. That's obviously not what happened today.
KELLY: No, indeed not. Stephan, just to make the basic point - prices are high. They've been high. Consumers are stressed out and have been stressed out about high costs. How does raising interest rates - something that, as you just explained, would actually make quite a few things more expensive - fit in?
BISAHA: Yeah. It does seem counterintuitive, right? You know, the Fed's ultimate goal here is reining in inflation, and this is going to raise some costs for consumers, even if it is pretty modest. The thing is, though, even with how stressed consumers are about costs right now, they are still spending. Like, this morning, we got retail sales numbers for August, and they grew at 1.2% from a month earlier. So consumer spending not slowing down. And neither is commercial spending, especially, you know, with the AI boom leading to this, like, data center construction wave across the country.
So raising interest rates - it is about just tapping the brakes on the economy, ideally, to raise borrowing costs not enough to, like, tank that spending but just slow it down a little bit. So from the Fed's perspective, this is a little, short-term pain. Some like - let me - light whiplash from tapping those brakes, and it is worth it if it means lessening the pain from inflation in the long term.
LIASSON: Well, the long term is not what politicians in Washington are thinking about right now.
BISAHA: (Laughter) Yeah.
LIASSON: Short-term pain is what they're worried about, and the Republicans' ability to hold onto control in Washington is based on near-term impressions, and people in our swing voter focus groups do not see the difference between $4 gas and a nearly 7% mortgage or a more expensive car loan. High costs are high costs, and voters say it's changing their lives. They can't do the things or buy the things they used to. They say they're not poor - they're broke. They can't go on vacation or they dipped into their 401(k), and they can't afford the things that made up their middle-class lifestyle. And that is a very big deal politically, when the middle class feels they can't hang on.
KELLY: Well, speaking of things that the president and other Republicans are worried about, President Trump - he's been calling for lower interest rates. He handpicked Kevin Warsh to be his Fed Reserve chair and gave him a pretty clear marching order - like, I would like to see interest rates go down. That's the opposite of what just happened.
LIASSON: Yep. Warsh did not do what Trump wanted him to do. And just a couple days ago, Trump said the U.S. should be paying, quote, "the lowest interest rates in the world." He's also threatened to cut off big chunks of U.S. trade if rates aren't cut, but it looks like his threats backfired.
BISAHA: Yeah. I mean, if you're Kevin Warsh, you - the Fed had this real magnifying glass on it that, like, markets - they were watching to see if the Fed was actually independent from political interference, 'cause we've seen other central banks in other countries when they lose that independence, when they just respond to political pressure. That could have serious consequences when it come to inflation and really hurt an economy.
KELLY: Stephan, more rate hikes on the horizon?
BISAHA: Yeah. The Fed has signaled that they expect another rate hike before the end of the year. So it's not like we're expecting a spree of rate hikes, but we are certainly not going to see rates go down like President Trump wants, at least not for a while. And this means consumers will likely continue to feel squeezed this year by both the cost of borrowing, along with the cost of just about everything else.
KELLY: NPR's Stephan Bisaha and Mara Liasson, thank you both.
BISAHA: Thank you.
LIASSON: Thank you. Transcript provided by NPR, Copyright NPR.
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