The higher credit card interest rates are a direct result of the Federal Reserve increasing interest rates to cool the economy and constrain inflation, and they’re likely to rise more as Fed Chairman Jerome Powell pursues a plan to keep boosting rates. 

“During the last rate hike cycle, it took the Fed three years to raise rates 225 basis points (from December 2015 to December 2018),” Rossman said in the email. “This time, it only took them 4 ½ months from mid-March to late July. And there’s more to come.” Rossman predicted interest rates will jump another 150 basis points by yearend.

The hikes generally affect both new and existing balances, so that means most credit cardholders now face rates that are about 225 basis points higher than they were six months ago, Rossman said. He noted that’s a significantly increased burden for consumers with hefty balances.

For the card-issuing banks, such as JPMorgan Chase and Capital One, that means more interest income, in addition to the increasing benefit they’re reaping from higher inflation, which increases the cost of the goods and services purchased that feed those balances.

The card issuers and the card network companies, including Visa, Mastercard, American Express and Discover Financial Services, all benefit from any rise in interchange fees that are a percentage of the amounts spent.

By Lynne Marek on Sep 2, 2022
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