The expected 75% increase in interest rates was announced by the Federal Reserve on Wednesday. (iStock)
The Federal Reserve announced its fourth consecutive interest rate hike of 75 percent on Wednesday and promised to stay on track until it reaches its inflation target.
The move came as the Fed said it continued to fight inflation, which hit 8.2% year-over-year in September. While the inflation rate dropped slightly from 8.3% in August, it remains at a 40-year high of 9.1% set at the beginning of this year.
An increase in the federal funds rate affects interest rates on products such as personal loans, mortgages, student loans and credit cards.
The interest rate hike brings the federal funds rate to 3.75% to 4%, the highest level since January 2008. The Fed said it expected a rate hike they are more developed “to obtain a monetary policy that is restrictive enough. to return the cost of living to 2%”.
Economists expected an interest rate hike on Wednesday. However, the big question for many is whether the Fed will start reducing interest rates at the next meeting scheduled for early December.
Federal Reserve Chairman Jerome Powell told reporters at a press conference that the Fed could start slowing inflation as soon as the next meeting or meetings. February.
“At one point, […] it will be appropriate to slow rate hikes, as interest rates approach levels that will be sufficiently restrictive to bring inflation down to our 2% target,” Powell said. “There is considerable uncertainty around that level. This is interest.
“However, we still have a ways to go, and the data coming in since our last meeting suggests that the final interest rate level will be higher than previously expected,” Powell continued.
If you want to take advantage of interest rates before they rise, you may want to consider financing your loan to lower your monthly payments. You can visit Credible to find your personal rate without affecting your credit score.
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The Fed will continue to raise rates as long as inflation remains high
Powell noted that the economic data reflected “expenditure and production growth this quarter.” And while the slowdown in growth signals that the Fed’s monetary policy is working, the labor market remains tight, “with the unemployment rate at a 50-year low, the unemployment is still very high, and wage growth.”
Inflation remains well above the Fed’s 2% target.
“The aggressive path of the Fed is justified because inflation, which caused it, has not yet died,” said Dan North, senior economist at Allianz Trade. “But for now, the Fed will steer the economy into recession.”
Kevin Mahn, president and chief investment officer at Hennion & Walsh Asset Management, said he expected the Fed to raise interest rates by 50 basis points at its December meeting.
“I also think that the Fed may stop raising interest rates at the end of the first half of 2023,” said Mahn. by 2022 to help combat inflation.”
The challenge for the Fed is to minimize interest rate hikes without “allowing markets to develop a narrative about the Fed’s ‘pivoting’ from its current priority of easing pressure on ‘the cost of living,” said Luke Bartholomew, senior economist at Global Investments. abrdn company
“The last time the market ran on the ‘pivot’ narrative, over the summer, Powell was forced to give a very hawkish speech in Jackson Hole and the Fed ended up hiking more than it might have originally intended.” ,” said Bartholomew.
If you are looking to reduce your spending amid economic uncertainty, you may want to consider personal student loan financing to lower your interest rate and monthly payment. . To see if this is the right option for you, contact Credible to speak with a student loan expert and have all your questions answered.
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Here’s how high interest rates affect your money
Higher interest rates affect the cost of borrowing for mortgages, car loans and credit cards.
While mortgage rates aren’t directly linked to interest rates, they are influenced by the Fed’s decisions, explained Nick Taylor, vice president and chief housing officer. at Better.com.
The mortgage rate recently hit a 20-year high of 7.08%, and it is likely that mortgage rates will remain flat or rise if the Fed continues its rate hike policy, said Taylor.
“The outlook for mortgage rates next year remains cloudy. If inflation continues to rise, we should expect to see continued action from the Federal Reserve, which will support the volatility we’ve seen in credit rates this year,” Taylor said. “We should see a continued shift from sellers to buyers if the Federal Reserve raises rates.”
Interest rates on most credit cards are likely to rise and will “especially affect consumers who don’t pay off their credit card balances in full by making late payments.” which is less every month,” said Michele Raneri, TransUnion’s vice president of US research and consulting.
For car loans it’s a similar story. The average interest rate paid on loans to finance new vehicles rose to 5.7% in Q3 2022, the highest rate since Q3 2019, according to Edmunds.
“High prices and rising interest rates are negotiating with consumers one-two by making monthly payments in a new state,” said Jessica Caldwell, director the Edmunds vision executive.
If you’re struggling with inflation, you may want to consider taking out a personal loan to help pay off debt at a lower interest rate, lowering your monthly expenses. You can visit Credible to compare multiple lenders at once and choose the one with the best interest rate for you.
Have a money-related question, but don’t know who to ask? Email The safe money experts at [email protected] and your questions may be answered by Credible in the Expert Money column.
