The news: The Federal Reserve raised its benchmark interest rate on Wednesday, the first hike since 2023, as inflation tied to the war with Iran keeps prices above the central bank's 2% target.

• Consumer prices rose 3.4% annually in August, matching July's pace, per the Bureau of Labor Statistics. Prices were up 0.4% MoM, compared with 0.1% in July.
• Producer prices climbed 5.4% YoY in August, versus 4.8% in July.

The 10-year Treasury yield has hovered around 5% this week, flirting with levels not seen since 2007.

Why this matters: Rate hikes flow directly into consumer borrowing costs, and issuers have shown little appetite to give back gains once rates climb. The average credit card interest rate is currently  22.19%, up from its previous peak of  21.47%in late 2023. A new hiking cycle gives issuers room to keep rates elevated.

Recommendations for banks: Deposit yields typically move slower than loan rates, but a rate hike gives banks a timely reason to promote products that make customers’ money work harder for them, such as high-yield savings accounts (HYSAs) and CDs.

HYSAs build loyalty with customers looking for the best rates. Among current account owners, 79% wish they had opened an account sooner, and 91% would recommend one to another saver, per Openbank and Santander US. 

Savings is also top of mind: 76% of US banking customers named it their top 2026 financial goal in the same survey.

Banks that move slowly on deposit rates have lost ground before. During the 2022 to 2023 hiking cycle, roughly 30% of customers moved funds out of their primary savings account, per JD Power, and one-third cited higher rates elsewhere as the reason. 

Wall Street is pricing in a second hike in December, with October leaning toward a pause, per CME FedWatch. Banks that wait for competitors to move first risk losing funds they could capture now.

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