Against a backdrop of elevated inflation and a strong labor market, our policy has been adapting to the evolving economic environment.

[Narrator] It's the latest step the Fed is taking toward removing stimulus to bring down inflation and marks the first time it has raised borrowing costs since December of 2018.

Expectations of a faster pace of rate rises prompted investors to change strategies they had used for nearly two years,

leading to the worst stock market selloff since the early days of the pandemic.

WSJ personal finance reporter J.J. McCorvey breaks down how the rate hike could affect mortgages, loans, credit cards and your retirement planning.

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The market's rates have already been increasing in anticipation of the Fed rate hikes but now they're expected to go up even more through 2022.

However, if you have a 30-year fixed rate mortgage,

you have less reason to worry because your rate is locked and you likely won't be affected.

[Narrator] While fixed rate mortgages have a set interest rate for the life of the loan,

repayments on adjustable-rate mortgages become more expensive when interest rates go up.

The rate increase could also pose challenges for those shopping for a home.

For people who are new home buyers, the higher rates could make it harder to qualify for a mortgage.

[Narrator] Even small rate increases can be costly if applied to big purchases when stretched over the life of a multi-year loan.

Rising rates will impact both private and federal student loans.

New interest rates apply to only new loans but people who have existing private loans might have the option to refinance.

Refinancing student loans could be a good option for those who qualify for a better rate based on changes in credit or income.

When it comes to auto loans, similar to fixed rate mortgages, most won't be affected if you already have one because they usually come with a fixed interest rate.

But if you're shopping for a car, a new loan with higher interest means you'll be paying a little more money.

Interest rates on credit cards are typically not fixed.

In fact, credit card interest rates change almost immediately after a Fed rate increase.

If your interest rate rises, so could your minimum payment and that could make it harder to pay off debt.

While higher interest rates means more money can be earned from savings, if you carry a credit card balance month to month,

a higher interest charge could be applied to those balances.

Paying balances in full will help avoid additional costs.

If you have an interest bearing savings account, that could mean a little more money for you but how much that changes depends on your bank.

[Narrator] The national average interest rate for savings accounts is .06% but some banks have savings rates higher than the national average, which will earn savers more money.

Experts say fixed rate savings, such as annuities and short-term bond yields will also rise.

This could benefit folks who live off interest.

Markets have already experienced some volatility due to the expected rate hike, which has pushed some investors towards safer bets.

[Narrator] Those safer bets could include dividend stocks and gold exchange traded funds, some of which have outperformed this year.

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Federal Reserve Chairman Jerome Powell has left the door open to raising rates at consecutive policy meetings, which are held about every six weeks.

The Fed hasn't raised rates at that frequency since 2006.

While Powell says he expects inflation rates to decline through the course of the year, he admits the economic outlook remains highly uncertain.

With this in mind, we will remain attentive to risks,

including the risk that high inflation is more persistent than expected and are prepared to respond as appropriate to achieve our goals.

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