The Federal Reserve on Wednesday turned to its most powerful tool to reduce inflation, with the central bank raising rates for the sixth time in 2022. a big impact on your finances.
The Fed has said it is raising interest rates 0.75 percent On Wednesday, it will mark its fourth consecutive increase in growth this year.
In early 2022, the central bank raised interest rates by 0.25 percent and 0.5 percent, respectively, but with inflation likely to stick, the Fed is starting to raise interest rates to lower rates. Concerns about the American people have been heard more and more, especially at a time when inflation is still high. Home loans rose 7% for the first time in two decades, credit card rates are on the rise.
“Unsurprisingly, it’s more expensive to borrow than it was six months ago, and certainly a year ago,” Matt Schulz, chief credit analyst at LendingTree, told CBS MoneyWatch. “When you combine that with visuals everything is getting expensive daily or weekly, it has been a very difficult year for consumers. “
It can be tough, experts say.
Here’s what to expect after the Federal Reserve hikes.
What is the Fed rate hike?
The central bank raised its interest rate by 0.75 percent, bringing the Fed’s target range to 3.75 percent to 4 percent.
This increase was expected by economists – but the main question is whether the Fed will show how to raise rates in December and later, according to Oxford Economics leading US economist Nancy Vanden Houten in a research note published before the decision.
“Some Fed officials have said that a gradual rate hike is imminent,” he said.
The stock market jumped after the Fed’s statement on Wednesday, which indicated that future increases may be smaller than the last series of increases of 0.75%.
“In view of the increase in demand in the future, the Committee will also consider the expansion of monetary policy, the extent to which monetary policy affects economic activity and inflation, and economic and financial development,” the Fed said in its publications. Wednesday speech.
Expensive pricing takes its toll on you
Every 0.25 percent increase in the Fed’s interest rate results in a $25 annual increase in interest on a $10,000 loan.
That means Wednesday’s 0.75 percent increase will add $75 in interest on every $10,000 loan.
Meanwhile, the Fed’s five rate hikes in 2022 have tripled rates — which means consumers are now paying $300 in interest on every $10,000 loan. With Wednesday’s additional hike, the Fed’s rate hike means consumers are paying $375 for every $10,000 they borrow.
Credit cards: Highest rates in years
This will make a big difference for consumers who have money on their credit cards.
Already, credit card interest rates have jumped in anticipation of the Fed’s 2022 rate hike, with credit card interest rates reaching 22.21% in October, according to LendingTree data. That’s the highest since LendingTree began tracking rates in 2018, Schulz said.
“The vast majority of credit card holders in this country will see the cost of their cards increase within the next month or two after this happens,” he said.
This doesn’t affect people who pay off their credit card bills every month, but those with higher balances will see higher interest rates on their accounts. And while inflation is still high, most Americans are to climb credit card debt to not go through.
About 6 in 10 credit card holders have carried a bank account on their card for at least a year, up from 1 in 10 in 2021. according to at CreditCards.com.
“We’ve seen credit card debt grow rapidly recently, and that’s to be expected because so many people have become so dependent on their credit cards to pay for gas or groceries or basic living expenses,” Schulz said.
I have credit card debt. What can I do?
There are several options available to people who have credit card debt and are facing high interest rates from their credit card issuers, Schulz said.
The best option is to get a zero-percent balance transfer card, which is still widely available. However, these cards — which let you transfer your money from one card that pays interest to another that pays 0% during the initial period — are only available to people with good credit scores of 680 or higher, Schulz said.
Such zero-percentages pay a conversion fee of about 3%, and also offer a grace period of 15 months or more to repay the loan.
Consumers can also call their credit card companies and ask for a lower rate, a request that carries a surprisingly high interest rate, Schulz said.
“We did a survey earlier this year that showed about 70% of people who asked for a low APR on their credit card got it, but very few actually asked,” he said.
How will further increases affect house prices?
Interest rates have risen this year in line with the Fed’s rate hikes, only increasing the 30-year mortgage 7% last month – more than double the current rate by early 2022.
This means real money for home buyers. Take a home that sells for a median price of US $384,800 and is bought with 20% down. With the current mortgage at 7.16%, a homebuyer would pay about $750 more per month than with a mortgage at 3.2%, the rate earlier this year.
It is possible that prices will be higher than on Wednesday.
Already, rising interest rates have fueled the housing market — and economists are predicting a boom. Home prices could fall by 20% next year as interest rates continue to rise and the housing market recovers from the pandemic, according to to Ian Shepherdson, economist with Pantheon Macroeconomics.
Car loans
Car loans are on the rise, even as car prices are falling, according to car sales app CoPilot.
Average used car rentals rose 1.2 percent from March to October, CoPilot said. This means that the average payment for a used car is about $564 per month, compared to $546 in March, or $1,300 more over the life of the loan. That’s taking away a lot of the benefit of lower prices, the company said.
And the average 60-month loan rate for a new car jumped to 5.6% at the end of October from 4.9% in August, according to Bankrate.
Savings accounts, CDs
There is another upside to the Fed: Higher rates on savings accounts and certificates of deposit.
The rates for these accounts have increased significantly this year, despite the increase he is slowing down set by the Federal Reserve – and the rise witnessed in other interest-related products, such as mortgages and credit cards.
The average interest rate on savings accounts is 0.16%, according to Bankrate, although online savings banks offer better, higher rates of 3% or more. Currently, some CDs are offering rates at 4% or more.
This is better than keeping money in cash, but still lower than inflation. With inflation over 8% in September, savers are losing money by putting their money into savings accounts that pay 3%.
