{"id":7420,"date":"2022-12-15T15:07:05","date_gmt":"2022-12-15T21:07:05","guid":{"rendered":"https:\/\/nwfl4sale.com\/how-feds-rate-hikes-could-affect-your-finances\/"},"modified":"2022-12-15T15:07:05","modified_gmt":"2022-12-15T21:07:05","slug":"how-feds-rate-hikes-could-affect-your-finances","status":"publish","type":"post","link":"https:\/\/nwfl4sale.com\/how-feds-rate-hikes-could-affect-your-finances\/","title":{"rendered":"How Fed\u2019s Rate Hikes Could Affect Your Finances"},"content":{"rendered":"
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Fed policymakers on Wed. raised the key rate by a half-point to a range of 4.25% to 4.5%, the highest in 14 years. But what do this year\u2019s rate hikes mean to you?<\/span><\/span><\/span><\/p>\n<\/div>\n NEW YORK (AP) \u2013 The Federal Reserve\u2019s move Wednesday to raise its key rate by a half-point brought it to a range of 4.25% to 4.5%, the highest level in 14 years.<\/span><\/span><\/span><\/p>\n The Fed\u2019s latest increase \u2013 its seventh rate hike this year \u2013 will make it even costlier for consumers and businesses to borrow for homes, autos and other purchases. If, on the other hand, you have money to save, you\u2019ll earn a bit more interest on it.<\/span><\/span><\/span><\/p>\n Wednesday\u2019s rate hike, part of the Fed\u2019s drive to curb high inflation, was smaller than its previous four straight three-quarter-point increases. The downshift reflects, in part, the easing of inflation and the cooling of the economy.<\/span><\/span><\/span><\/p>\n As interest rates increase, many economists say they fear that a recession remains inevitable \u2013 and with it, job losses that could cause hardship for households already badly hurt by inflation.<\/span><\/span><\/span><\/p>\n Here\u2019s what to know:<\/span><\/span><\/span><\/p>\n The short answer: Inflation. Over the past year, consumer inflation in\u00a0the United States\u00a0has clocked in at 7.1% \u2013 the fifth straight monthly drop but still a painfully high level.<\/span><\/span><\/span><\/p>\n The Fed\u2019s\u00a0goal is to slow consumer spending, thereby reducing demand for homes, cars and other goods and services, eventually cooling the economy and lowering prices.<\/span><\/span><\/span><\/p>\n Fed Chair\u00a0Jerome Powell\u00a0has acknowledged that aggressively raising interest rates would bring \u201csome pain\u201d for households but that doing so is necessary to crush high inflation.<\/span><\/span><\/span><\/p>\n Anyone borrowing money to make a large purchase, such as a home, car or large appliance, will take a hit, according to\u00a0Scott Hoyt, an analyst with Moody\u2019s Analytics.<\/span><\/span><\/span><\/p>\n \u201cThe new rate pretty dramatically increases your monthly payments and your cost,\u201d he said. \u201cIt also affects consumers who have a lot of credit card debt \u2013 that will hit right away.\u201d<\/span><\/span><\/span><\/p>\n That said, Hoyt noted that household debt payments, as a proportion of income, remain relatively low, though they have risen lately. So even as borrowing rates steadily rise, many households might not feel a much heavier debt burden immediately.<\/span><\/span><\/span><\/p>\n \u201cI\u2019m not sure interest rates are top of mind for most consumers right now,\u201d Hoyt said. \u201cThey seem more worried about groceries and what\u2019s going on at the gas pump. Rates can be something tricky for consumers to wrap their minds around.\u201d<\/span><\/span><\/span><\/p>\n Even before the Fed\u2019s latest move, credit card borrowing rates had reached their highest level since 1996, according to Bankrate.com, and these will likely continue to rise.<\/span><\/span><\/span><\/p>\n And with prices still surging, there are signs that Americans are increasingly relying on credit cards to help maintain their spending. Total credit card balances have topped\u00a0$900 billion, according to the Fed, a record high, though that amount isn\u2019t adjusted for inflation.<\/span><\/span><\/span><\/p>\n John Leer, chief economist at Morning Consult, a survey research firm, said its polling suggests that more Americans are spending down the savings they accumulated during the pandemic and are using credit instead. Eventually, rising rates could make it harder for those households to pay off their debts.<\/span><\/span><\/span><\/p>\n Those who don\u2019t qualify for low-rate credit cards because of weak credit scores are already paying significantly higher interest on their balances, and they\u2019ll continue to.<\/span><\/span><\/span><\/p>\n As rates have risen, zero percent loans marketed as \u201cBuy Now, Pay Later\u201d have also become popular with consumers. But longer-term loans of more than four payments that these companies offer are subject to the same increased borrowing rates as credit cards.<\/span><\/span><\/span><\/p>\n For people who have home equity lines of credit or other variable-interest debt, rates will increase by roughly the same amount as the Fed hike, usually within one or two billing cycles. That\u2019s because those rates are based in part on banks\u2019 prime rate, which follows the Fed\u2019s.<\/span><\/span><\/span><\/p>\n The rising returns on high-yield savings accounts and certificates of deposit (CDs) have put them at levels not seen since 2009, which means that households may want to boost savings if possible. You can also now earn more on bonds and other fixed-income investments.<\/span><\/span><\/span><\/p>\n Though savings, CDs, and money market accounts don\u2019t typically track the Fed\u2019s changes, online banks and others that offer high-yield savings accounts can be exceptions. These institutions typically compete aggressively for depositors. (The catch: They sometimes require significantly high deposits.)<\/span><\/span><\/span><\/p>\n In general, banks tend to capitalize on a higher-rate environment to boost their profits by imposing higher rates on borrowers, without necessarily offering juicer rates to savers.<\/span><\/span><\/span><\/p>\n Last week, mortgage buyer\u00a0Freddie Mac\u00a0reported that the average rate on the benchmark 30-year mortgage dipped to 6.33%. That means the rate on a typical home loan is still about twice as expensive as it was a year ago.<\/span><\/span><\/span><\/p>\n Mortgage rates don\u2019t always move in tandem with the Fed\u2019s benchmark rate. They instead tend to track the yield on the 10-year\u00a0Treasury\u00a0note.<\/span><\/span><\/span><\/p>\n Sales of existing homes have declined for nine straight months as borrowing costs have become too high a hurdle for many Americans who are already paying much more for food, gas and other necessities.<\/span><\/span><\/span><\/p>\n If you\u2019re financially able to proceed with a home purchase, you\u2019re likely to have more options than at any time in the past year.<\/span><\/span><\/span><\/p>\n Since the Fed began increasing rates in March, the average new vehicle loan has jumped more than 2 percentage points, from 4.5% to 6.6% in November, according to the\u00a0Edmunds.com\u00a0auto site. Used vehicle loans are up 2.1 percentage points to 10.2%. Loan durations for new vehicles average just under 70 months, and they\u2019ve passed 70 months for used vehicles.<\/span><\/span><\/span><\/p>\n Most important, though, is the monthly payment, on which most people base their auto purchases. Edmunds says that since March, it\u2019s up by an average of\u00a0$61\u00a0to\u00a0$718\u00a0for new vehicles. The average payment for used vehicles is up\u00a0$22\u00a0per month to\u00a0$565.<\/span><\/span><\/span><\/p>\n Ivan Drury, Edmunds\u2019 director of insights, says financing the average new vehicle with a price of\u00a0$47,000\u00a0now costs\u00a0$8,436\u00a0in interest. That\u2019s enough to chase many out of the auto market.<\/span><\/span><\/span><\/p>\n \u201cI think we\u2019re actually starting to see that these interest rates, they\u2019re doing what the Fed wants,\u201d Drury said. \u201cThey\u2019re taking away the buying power so that you can\u2019t buy a vehicle anymore. There\u2019s going to be fewer people that can afford it.\u201d<\/span><\/span><\/span><\/p>\n Any rate increase by the Fed will likely be passed through to auto borrowers, though it will be slightly offset by subsidized rates from manufacturers. Drury predicts that new-vehicle prices will start to ease next year as demand wanes a little.<\/span><\/span><\/span><\/p>\n Cryptocurrencies like bitcoin have dropped in value since the Fed began raising rates. So have many previously high-valued technology stocks.<\/span><\/span><\/span><\/p>\n Higher rates mean that safe assets like Treasuries have become more attractive to investors because their yields have increased. That makes risky assets like technology stocks and cryptocurrencies less attractive.<\/span><\/span><\/span><\/p>\n Still, bitcoin continues to suffer from problems separate from economic policy. Three major crypto firms have failed, most recently the high-profile FTX exchange, shaking the confidence of crypto investors.<\/span><\/span><\/span><\/p>\n Some economists argue that layoffs could be necessary to slow rising prices. One argument is that a tight labor market fuels wage growth and higher inflation. But the nation\u2019s employers kept hiring briskly in November.<\/span><\/span><\/span><\/p>\n \u201cJob openings continue to exceed job hires, indicating employers are still struggling to fill vacancies,\u201d said\u00a0Odeta Kushi, an economist with First American.<\/span><\/span><\/span><\/p>\n Borrowers who take out new private student loans should prepare to pay more as as rates increase. The current range for federal loans is between about 5% and 7.5%.<\/span><\/span><\/span><\/p>\n That said, payments on federal student loans are suspended with zero interest until summer 2023 as part of an emergency measure put in place early in the pandemic. President\u00a0Joe Biden\u00a0has also announced some loan forgiveness, of up to\u00a0$10,000\u00a0for most borrowers, and up to\u00a0$20,000\u00a0for Pell Grant recipients \u2013 a policy that\u2019s now being challenged in the courts.<\/span><\/span><\/span><\/p>\n It looks increasingly unlikely that rates will come down anytime soon. On Wednesday, the Fed signaled that it will raise its rate as high as roughly 5.1% early next year \u2013 and keep it there for the rest of 2023.<\/span><\/span><\/span><\/p>\n AP Business Writers\u00a0Christopher Rugaber\u00a0in\u00a0Washington,\u00a0Tom Krisher\u00a0in\u00a0Detroit\u00a0and\u00a0Damian Troise\u00a0and\u00a0Ken Sweet\u00a0in\u00a0New York\u00a0contributed to this report.<\/span><\/span><\/span><\/p>\n The Associated Press receives support from\u00a0Charles Schwab Foundation\u00a0for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from\u00a0Charles Schwab and Co. Inc.\u00a0The AP is solely responsible for its journalism.<\/span><\/span><\/span><\/p>\n Copyright \u00a9 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.<\/span><\/span><\/span><\/p>\n<\/div><\/div>\n <\/p>\n <\/p>\nWhat\u2019s prompting the rate increases?<\/span><\/span><\/span><\/h3>\n
Which consumers are most affected?<\/span><\/span><\/span><\/h3>\n
How will this affect credit card rates?<\/span><\/span><\/span><\/h3>\n
How are savers affected?<\/span><\/span><\/span><\/h3>\n
Will this affect homeownership?<\/span><\/span><\/span><\/h3>\n
Will it be easier to find a house if I\u2019m still looking to buy?<\/span><\/span><\/span><\/h3>\n
What if I want to buy a car?<\/span><\/span><\/span><\/h3>\n
How have the rate hikes influenced crypto?<\/span><\/span><\/span><\/h3>\n
What about my job?<\/span><\/span><\/span><\/h3>\n
Will this affect student loans?<\/span><\/span><\/span><\/h3>\n
Is there a chance the rate hikes will be reversed<\/span>?<\/span><\/strong><\/span><\/span><\/h3>\n