Since 2021 consumers have been burdened by fast-rising prices for groceries, rent, and more. Now add rising interest rates – boosted by the Federal Reserve in a bid to contain that inflation. Young workers in particular are feeling the pinch, as they experience a spike in borrowing costs unlike anything that has happened in their lifetimes. 

It’s visible from mortgages to car loans. Credit card interest rates have risen higher and faster than anyone in Generation Z has ever seen. If the Fed continues to raise interest rates this year, a wider swath of households, young and old alike, could reach a breaking point. So far, however, consumers have proved remarkably resilient, largely because jobs have remained plentiful.

Businesses are affected too: In the past week, two U.S. banks have failed: one of them in part because rising rates caused the value of its long-term credit investments to plunge. That’s sparking questions about whether the Fed will continue raising rates.

“I am not in a very sustainable situation,” says Alex Baker, a Gen Zer in Birmingham, Alabama, despite working as a paralegal at a local law firm and holding down a second job as a barista at Frothy Monkey, an all-day café. He’s looking for a new, higher-paying job.

For Max Egan, an MBA student at the University of Alabama, the idea of buying a home after graduate school was never his first option. Now, it’s not an option at all.

“It is definitely out of the question right now with interest rates so high,” he says. Even in Kansas City, Missouri, where he’s got a job lined up after graduation, housing costs are high. “They’re higher than I would expect,” Mr. Egan says.

The combination of high inflation and rising interest rates is increasingly straining the resources of U.S. consumers. Young workers in particular are feeling the pinch, and experiencing a spike in borrowing costs unlike anything that has happened in their lifetimes. Everything from car loans to mortgages and home equity lines of credit has become more onerous. Credit card interest rates have risen higher and faster than anyone in Generation Z has ever seen.

If the Federal Reserve continues to raise interest rates to combat inflation, a wider swath of households, young and old alike, could reach a breaking point. Businesses, too, are being affected as rising interest rates make it costlier to borrow for big projects or smaller needs. In the past week, two U.S. banks have failed: one of them in part because rising rates caused the value of its long-term credit investments to plunge.

Those failures, although they were met with prompt federal efforts to prevent a banking panic, are sparking new questions about whether the Fed will continue raising rates and whether banks will make fewer loans in this period of uncertainty. So far, however, consumers have proved remarkably resilient – buoyed by plentiful jobs and by their own efforts to cut expenses and trim back expectations.