Last week brought a confluence of economic headlines that are slated to hit the consumer right where it hurts the wallet and perhaps the sentiment propensity to open those wallets No doubt you know by now that the Federal Reserve voted to boost the federal funds rate by a nother quarter of a percentage point That rate is what is charged to banks when they borrow money and now it goes from 2 percent to 225 percent The key now as it pretty much has been for well a long time is for banks to bring that increase on funding costs to end consumers In other words they pass costs along in the form of higher rates And those higher rates shift to borrowers who buy all manner of things from autos to houses and to those of course who carry debt and credit card balances The end-of-September hike marked the third rate increase and conventional wisdom looks for a fourth hike this year First things first Even with the rate hikes seemingly coming quickly each on the heels of the other it should be noted here that the rate itself has been coming up off historic lows where the rate has been effectively zero for quite a while Still when coming off a base of near-zero add enough basis points to the charge on borrowing money and it starts to add up Enough to be a brake on the consumer which as widely reported has been the engine behind two thirds of US economic growth As has been noted in this space the credit card debt carried by individuals in the US has mushroomed to more than 1 trillion Sources such as CreditCardscom report that the average interest rate as measured just before the hike stands at just under 17 percent Rates will go up in tandem of course The rate hike means that another 25 basis points on each trillion of debt out in the field comes to 25 billion in additional interest charges annually This comes against a backdrop where as PYMNTS noted in August the rate of delinquencies on credit card debt have been climbing from a low seen in 2010 to as much as 8 billion this year Another loan type that is above the trillion-dollar mark is auto loans As noted by CNBC the average five-year new car loan is 48 percent up from 43 percent just a few years ago Auto prices have been on the rise and a financed purchase of a car could cost as much as 6 500 in interest over the life of a loan as estimated by firms such as Edmunds And yet Consumer confidence remains at its highest level in the last 18 years where the reading of 1384 is within sight of the all-time peak of 1447 seen back then Its likely that some wealth effect ie through the stock market is in play here Also keep in mind that data released Friday Sept 28 shows that US consumer spending grew by 30 basis points in August which yes is still growth but somewhat relatively anemic The 30 basis point gain is a slowdown in August from July when the growth was 40 basis points Adjusted for inflation the amount is even lower at 20 basis points The gain in August is the smallest seen in six months and it mixed expectations by 10 basis points So yes optimism may be high and spending still robust but it is slowing The savings rate is 66 percent which is down from more than 7 percent earlier in the year This means there is not as much saved up to take care of emergencies or to meet sticker shock if perhaps when it comes The tipping point may not be here but we are likely tipping toward one YOU MIGHT ALSO LIKE consumer confidence Consumer Debt Consumer Spending credit card debt economic growth federal reserve Interest Rates News rate hike rate increase US economy