The Federal Reserve’s first interest rate hike in more than three years could be especially costly for Black consumers, who are more likely to carry credit card balances and have less household wealth to fall back on when expenses rise.
The Fed raised its benchmark interest rate by a quarter percentage point Wednesday, putting its target range at 3.75% to 4%. The central bank said inflation remains elevated and that the increase is intended to help bring inflation back toward its 2% goal.
For consumers, the move means borrowing is likely to get more expensive, particularly on credit cards and other loans with variable interest rates.
For Todd West, a North County resident, those higher borrowing costs come on top of prices that already have risen because of inflation.
“Credit cards, everything,” West said. “Everything, ’cause people buy everything on credit cards. … It’s going to affect everything.”
Jayson Thornton, a financial advisor with Thornton Financial in St. Louis, said credit card borrowers could notice the effects relatively quickly because most cards have variable annual percentage rates tied to the prime rate.
“Cardholders typically see their APR adjust within one to two billing cycles — roughly 30 to 60 days,” Thornton said.
Federal data show Black consumers could be particularly exposed to those higher borrowing costs.
A Federal Reserve survey released in May found that 72% of Black credit card holders carried a balance at least once during 2025, compared with 40% of white cardholders. Among all Black adults, 48% carried a balance, compared with 34% of white adults.
Thornton said the potential for a disproportionate impact is tied in part to longstanding differences in accumulated wealth.
“Due to historical wealth gaps, Black households are statistically more likely to be debt consumers rather than capital asset holders,” Thornton said. “When the Fed raises rates, borrowing costs increase immediately, while the benefits of higher yields primarily flow to those with cash accounts and investment portfolios.”
Those differences can be substantial. The Federal Reserve’s most recent comprehensive survey of family finances found that in 2022, the median Black family had $44,900 in wealth — assets minus debts — compared with $285,000 for the median white family.
Thornton described wealth as a “financial shock absorber.” Families with savings have more flexibility to handle unexpected expenses without borrowing, while households living paycheck to paycheck have fewer options.
The rate hike also comes as Americans are carrying near-record levels of credit card debt. Balances reached $1.26 trillion during the second quarter, up $21 billion from the previous quarter, according to the Federal Reserve Bank of New York. Auto loan balances reached $1.71 trillion.
New delinquencies on credit cards and auto loans remain elevated, the New York Fed reported.
Black consumers also are more likely to use some higher-cost forms of credit. The Fed’s 2025 household survey found that 15% of Black adults had used a payday, pawn, auto-title or refund-anticipation loan during the previous year, compared with 4% of white adults.
Thornton said emergency cash shortages and barriers to traditional credit can push some consumers toward those loans.
“When an unexpected emergency strikes without a dedicated cash reserve, predatory lenders — offering triple-digit APRs — become the lender of last resort,” he said.
Housing presents a somewhat different picture. The Fed does not directly set mortgage rates, which are influenced by longer-term Treasury yields and other market forces. But higher mortgage rates can make monthly payments more expensive and make it harder for prospective buyers to qualify for loans.
Thornton said consumers should focus on building emergency savings when possible, reducing variable-rate debt and reviewing household expenses.
He said policymakers should watch credit card and auto-loan delinquencies, small-business loan access and housing affordability over the next six to 12 months.
West said consumers should prepare for the financial uncertainty.
“It’s not time to be scared,” he said. “It’s time to prepare.”