Americans are going to see yet another blow to their wallets after the raised interest rates by 0.75 percentage points for the fourth-time in a row on Wednesday.
The central bank this year after leaving them at near zero through the pandemic, with the Fed hoping the rate hikes will quell , which remains high at 8.6 percent.
The Fed’s main tool to fight inflation is by setting the short-term borrowing rate for commercial banks, which then pass that rate on to consumers and businesses, thus cooling the economy and easing the .
While inflation may go down, American’s loan payments are expected to surge, with mortgage rates hitting 7.16 percent last week, well above the rates seen just before the 2008 Great Recession.
Interest rates for auto loans and credit cars are also expected to soar, making it even harder for the average American to claw their way out of debt.
Savers, however, may see some benefits as their returns increase with the raising interest rates, with consumers able to shop for return rates as high as 2.4 percent.
The Fed’s latest hike is expect to cause borrowing rates and the monthly cost to pay back debt to further surge.The hike, however, typically brings in better savings offers from banks
The Federal Reserve pushed interest rates up by another 0.75 percentage points on Wednesday, the fourth-consecutive time this year after American’s enjoyed rates at nearly 0 percent throughout the pandemic
On Wednesday, the central bank bumped interest rates from 3.25 percent to 4 percent, it’s fourth 0.75 percentage point hike in five months and the biggest rate hike in 28 years.
The Fed’s policymakers signaled that they expect to boost their key rate up to at least 4.6 percent by the end of the year, suggesting at least another 0.6 percent hike in December.
Fed Chair Jerome Powell noted, however, that no decision has been made yet.He hopes that by making borrowing gradually more expensive, the central bank will succeed in cooling demand for homes, cars and other goods and services, thereby slowing inflation.
‘My colleagues and I are strongly committed to bring inflation down to our 2 percent goal,’ he said on Wednesday.’We will stay the course until the job is done.’
Powell said he stands by the Fed’s hikes, saying he doesn’t believe the central bank has ‘overtightened’ or ‘moved too fast,’ and that their work will see inflation fall.
‘It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation,’ he said.
Experts, however, warn that the aggressive push will send the US economy into a full recession, with many analyst forecasting the economic crisis by 2023.
Powell insisted that the Fed needs to remain aggressive in order to avoid entrenched inflation, suggesting that the central bank has no intent on slowing down hikes.
‘It is very premature to think about pausing,’ Powell said.
The Fed chair ultimately noted that while the path to a soft economic landing has ‘narrowed,’ it was ‘still possible.’
‘We’ve always said it was going to be difficult, but to the extent rates have to go higher and stay higher for longer it becomes harder to see the path,’ he said.’I would say the path has narrowed over the course of the last year.’
WILL THE NEW RATE MAKE IT MORE EXPENSIVE TO BUY A HOME?
One of the sectors the Fed has been watching closely is the interest-rate sensitive housing market, which has begun to cool off as interest rates soared past 7 percent last week.
With the 30-year mortgage rate sitting at 7.16 percent, the average person trying to purchase a $400,000 home with a down payment of $10,000 would be stick with a monthly payment of $2,9650, up $225 from September’s estimate.
That mortgage payment will likely see a greater spike should the Fed’s latest hike bump mortgage rates further as the US median price for a home during the third fiscal quarter rose to nearly $455,000.
Mortgage rates rose to 7.16 percent, the highest it’s been since 2001, a week before the latest interest hike was implemented
As of Tuesday, in the coming years without much difficulty, according to a study by Morning Consult.
A survey of 949 adults who do not own a home also found that nearly two thirds said they couldn’t afford a home they’d want and that house prices — which average in the US at more than $428,000 — are too high.
Likewise, more than half of respondents said buying a home was too risky, and 65 percent said the possibility of losing their job or other main source of income was a major threat associated with homeownership.
‘Americans across generations have an enduring desire to own their own home,’ the the study noted.
Of those surveyed, only 22 percent said they could buy a home without experiencing financial hardship.Another 63 percent said that owning a home would involve hardship or would not be possible.
The remaining 15 percent were not interested in owning.
Morning Consult surveyed 949 adults who did not own a home — more than half said it was a risky time to own
WHAT WILL HAPPEN TO MY CREDIT CARD COSTS?
Since most credit cards have a variable rate, there is a direct link between the rates credit card companies offer and the Federal Reserve’s benchmark.
Annual percentage rates on credit cards are up to 20.64 percent, a notable increase from the 16.3 percent at the beginning of the year prior to the Fed’s hike, according to Wallet Hub.
That means that the monthly payment to clear the average credit card debt of $6,000 within a year is now $557.65, up from $521.75 in September.
‘A 75-basis point increase will cost credit card users an additional $5.1 billion this year, on top of the hikes so far this year,’ analysts reported.
‘When you factor in the rate hikes from March, May, June, July, September and November, credit card users will wind up paying around $25.6 billion more in 2022 than they would have otherwise.’
Fed Chair Jerome Powell, pictured on Wednesday, said it remains unclear how much December’s expect hike will be, noting that the central bank is fully committed on doing everything it can to bring inflation down to 2 percent
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WHAT ABOUT MY AUTO AND PERSONAL LOANS?
Although the interest will go up for auto loans, dealers tend to be more sensitive to the competition during harsh economic times.
However, the recent Fed hikes and fears of a looming recession have caused interest rates for cars to increase, with US News & World Report recording average interest rates for an American with good credit score at 11.9 percent in October.
Having to deal with nearly $5,000 in interest, the average American’s car loan payment jumped to $436.45, up from $379.90.It’s a significant boost from previous jumps of a few dollars.
rent to own home up 7.2 percent and gasoline up 18 percent.
Airline fares saw a whopping 43 percent increase, with electric bills up 15.5 percent and the cost of a new car up 9.4 percent.
While inflation is down slightly from a 40-year-high in June of 9.1 percent, the 8.2 percent is still higher than at any point in the previous four decades
Biden got some mildly good news earlier this week when it was announced the country’s GDP grew by 2.6 percent in the third quarter of 2022, the first time it had grown since the fourth quarter of 2021
Democratic Sen. John Hickenlooper, of Colorado, slammed the central bank for its push to spike interest rates without having much to show in terms of lowering the cost of living.
‘High inflation necessitates a response,’ Hickenlooper wrote in his letter to Powell. ‘But the concern is the Fed is doing too much, too quickly.’
‘Mortgage rates have skyrocketed, borrowing costs for Main Street businesses have risen, credit card payments have gone up as interest payments have climbed, car loans are becoming more expensive,’ he added in the letter.
‘While inflation remains high– thus eroding consumers’ purchasing power — the Fed’s actions have further increased the cost of living… The prices of the above-listed goods and services have risen, and yet, the Fed’s actions have not brought other prices down.’
The US did receive some good news last week when it was announced the country’s GDP grew by 2.6 percent in the third quarter of 2022, the first time it had grown since the fourth quarter of 2021.
The two-consecutive negative quarters earlier in the year fired concerns that the US economy was crashing as the negative reports fall into the technical definition of a recession.
WHAT ABOUT MY RETIREMENT FUND?
Concern about finances during retirement has grown this year as Americans anticipate they will need to boost their retirement savings significantly.
On average, US adults now expect they will need $1.25 million to retire comfortably, a 20 percent increase from a year ago, according to a survey published on Tuesday by .
But at the same time, the average American’s retirement balance has dropped 11 percent to $86,869, down from $98,800 last year.
The average American’s average retirement balance has dropped 11% to $86,869, down from $98,800 last year
On average, US adults now expect they will need $1.25 million to retire comfortably, a 20% increase from a year ago — though more than half
The expected retirement age has risen to 64, which is up from 62.6 last year, indicating that Americans believe they will have to work more years to bank enough for retirement.
‘It’s a period of uncertainty for many people, driven largely by rising inflation and volatility in the markets,’ said Christian Mitchell, executive vice president and chief customer officer at Northwestern Mutual.
‘We’ve also seen upticks in spending year-over-year not only as a result of inflation, but also as people have resumed a sense of normalcy in their lives following the earlier days of the pandemic,’ he added.
‘These factors are leading many people to recalibrate their thinking about how much they’ll need to retire and how long it will take them to get there.’
Stocks remain lower than they were a year ago following steep drops over the spring and summer, however, the Dow Jones Industrial Average has seen a large rebound in the last month, jumping up by more than 10 percent.
COULD THE FED RAISING RATES IMPACT MY JOB?
By raising rates high enough to decisively dent inflation, the Fed will at the very least spark a period of slower economic growth.But investors are skeptical the Fed can achieve its aims without inducing a recession.
That’s because, the thinking goes, the unemployment rate is currently 3.5 percent, low by historical standards, and the US added 263,000 job in September, so firms could conceivably cut back on job openings without cutting actual jobs.
But many lawmakers and expert fear that a full recession will be triggered and that Americans will be out of jobs.
Sen. Elizabeth Warren chastised the Fed’s aggressive actions earlier this year, warning Powell that millions of workers could be laid-off as a result of the hikes.
‘You know what’s worse than high inflation and low unemployment?It’s high inflation with a recession and millions of people out of work,’ Warren said. ‘I hope you consider that before you drive this economy off a cliff.’