Americans have become accustomed to low interest rates to borrow money, making it cheaper to borrow for a home, car or other necessities. But consumers will now find themselves paying more for all kinds of loans and credits this year, while the Federal ReserveFrom 2018
Fed officials on Wednesday afternoon Announced That they are raising the central bank’s benchmark short-term interest rate by 0.25%. That may not seem like much, but a quarter-point move in the federal funds rate is expected to be just the first of many such increases this year as the Fed normalizes monetary policy and lowers the fastest inflation in decades. Tries to
The increase is the first time in four years that the central bank has raised rates, signaling the end of the cheap money era. The Fed’s argument behind the rate hike is to stem inflation, which last month. By making it more expensive to borrow money to buy a home, car or other item, policymakers hope that some consumers and businesses will decide to stop buying, leading to lower prices due to lower demand. Will go
“As prices rise, mortgages and cars become harder to bear,” Dick Fister, CEO of Alfakor Wealth Advisory, told CBS Moneywatch. “The benefit – if they can do it without causing a recession – is to bring down inflation.”
The Fed is looking at economic indicators such as the labor market, where the unemployment rate is near pre-epidemic levels. Yet while the economy is solid, there are risks with a change in the Fed’s strategy, as higher interest rates mean another price that the domestic budget must absorb.
“It’s really a very thin needle for the Federal Reserve to thread,” Fister said. “We have had this simple mindset of money for so long, it will be difficult to get the economy out of this mindset.”
How much will the rate increase cost you?
Every 0.25% increase in loan equals $ 25 in annual interest of $ 10,000. So if the Fed raises the rate by a total of 1.5% this year, compared to six increases, as many economists expect, consumers will pay an additional $ 150 a year on this loan.
This could rise sharply, especially for borrowers who want to buy large ticket items such as houses or cars, both due to low inventory and strong demand leading to a sharp rise in prices during epidemics. have seen. Wall Street expects the Fed to raise interest rates at least six times in 2022, raising policy rates from 1.5% to 1.75%, notes Lawrence Gallum and Ryan Dietrich, LPL financial strategists. What
Experts say this could increase the budget deficit felt by many consumers.
“Homes are likely to find a way between skyrocketing inflation and rising borrowing costs,” said Matthew Sherrod, a global economist at the Economist Intelligence Unit.
Credit Cards, Home Equity Lines of Credit
Credit card rates are likely to rise in line with the Fed’s move, as card charges are based on the bank’s core rates, which run in conjunction with the Fed. Experts say that your credit card rate is expected to increase in the next few billing cycles.
Adjustable rates are likely to affect other types of credit, such as home equity lines of credit and adjustable rate mortgages, which are also based on prime rates. Auto loans may also increase, although they may be more sensitive to competition for buyers, which may mute the effects of feed increases.
In anticipation of the Fed’s decision. According to Freddie Mac, the average 30-year debt rate rose to 3.85% for the week ended March 9, up from about 3.05% a year earlier.
However, mortgage rates do not generally rise in line with the Fed’s rate hike. Sometimes they even go in the opposite direction. Long-term mortgages track rates on a 10-year treasury, which in turn is affected by a variety of factors. These include investors’ expectations of future inflation and global demand for the US Treasury.
Savings accounts, CDs
One benefit for consumers may be higher productivity in your savings accounts and deposit certificates – to some extent.
The problem is that even if your savings account starts paying more than usual today 0.06% average interest rateInflation is very high. In fact, you may still be devaluing your money by putting it in a savings account.
“If [savings account rates] Goes up to 1% and inflation stays close to 8%, you are still negative 7% in terms of real output, “Fister said.” Unless inflation is brought under control, you will still be upside down. ۔ “