Mortgages, car loans, and credit card debt are about to get more expensive

• The Federal Reserve just raised interest rates again in an effort to stifle sky-high inflation.
• The hikes raise borrowing costs throughout the economy, from car loans to credit-card debt.

Buying a house or racking up credit card debt will get more expensive in the coming weeks thanks to the Federal Reserve's latest interest rate hike.

The central bank raised rates again on Wednesday, issuing a 0.75 percentage point hike in its latest move to crush inflation. The increase aims to slow price growth by raising borrowing costs throughout the economy and easing Americans' strong demand. That means all kinds of debt will be more expensive to pay off, from mortgages to credit card balances.

When the Fed lowers rates, payments on loans fall. Conversely, recent hikes made borrowing more expensive. The average rate on a 30-year fixed-rate mortgage reached 5.54% on July 21, up nearly 2.5 percentage points from the level seen at the end of 2021. Bank card rates have also swung higher, meaning holders are paying more interest on their balances.

The increases aren't all bad news for Americans. Apart from having a cooling effect on inflation, higher rates mean that those holding their cash in savings accounts will make slightly more in monthly interest.

The rate rally is set to continue through the rest of the year. The Federal Open Market Committee — the body that makes rate decisions — expects that "ongoing increases in the target range will be appropriate" in the months ahead, the central bank said in a statement. Projections published by the Fed in June signaled that FOMC members expect rates to climb by about one more percentage point by the end of the year to a range of 3.25% to 3.5%.

Rate increases serve as the Fed's weapon of choice for fighting inflation. Low rates tend to spur demand and spending, and the central bank lowered its benchmark rate to record lows in early 2020 to buoy the economy during the first lockdowns. Yet low rates can also lift demand well above supply, leading to an imbalance that pushes prices sharply higher.

That's certainly been the case over the past 18 months. Year-over-year inflation hit a four-decade high of 9.1% in June, according to the Consumer Price Index, boosted by supply-chain snags and Russia's invasion of Ukraine. That's significantly higher than the 2% target the Fed targets and is the main reason for the central bank's larger-than-usual rate hikes through 2022.

There's a good chance the pace of those increases will slow. Gas prices have fallen significantly since peaking in mid-June, signaling the July inflation report will show a significant easing in the one-year rate. Commodity prices have also fallen over the past month, offering relief to Americans paying up for necessities like food and heating.

The Fed's benchmark rate also sits in a much better position for addressing high inflation. The current range of 2.25% to 2.5% is broadly viewed by FOMC members as "neutral," meaning it neither stimulates nor restricts the economy. Though the Fed is likely to push rates to restrictive levels later this year, Chair Jerome Powell hinted Wednesday that the speed that it continues to raise rates won't be as telegraphed as past hikes.

"While another unusually large increase could be appropriate at our next meeting, that is a decision that'll depend on the data we get between now and then," he said. "We think it's time to go to a meeting-by-meeting basis and not provide the kind of clear guidance we provided on the way to neutral."

This post has been updated to reflect the most recent Fed interest rate decision.