The Federal Reserve’s decision to raise rates Wednesday will raise the cost of borrowing on so many levels—highs not reached since 1995 in some cases.
- The Federal Reserve hiked interest rates another 75 basis points on Wednesday.
- The increased rates may have the effect of gradually slowing inflation but it is also going to make loans and borrowing more expensive for consumers.
- Consumers can expect credit card interest, mortgages, loans, auto financing, and other variable rate loans to become more expensive.
- “The interest rates on consumer debt like carrying a balance on a credit card tend to move in lockstep with the fed funds rate,” says Forbes Advisor.
- “Higher rates increase borrowing costs for businesses and consumers, who will now be coping with a triple dose of three-quarters of a percentage-point hikes—a boost that could make a big impact on your budget,” says CBS News.
Why it’s news
While the move to slow inflation and bring the volatile economy under control is necessary, the worst affected by higher interest rate payments are going to be the economically disadvantaged and poor, especially those with high mortgage rates or outstanding credit card debt.
“Now is the time to aggressively pay down high-cost credit cards… Credit card rates are the highest since 1995, mortgage rates are the highest since 2008, and auto loan rates are the highest since 2012,” says Bankrate CFA Greg McBride.
“Fueled by the Fed’s hikes, mortgage rates have surged to the highest level since the Great Recession—climbing from nearly 3.8% at the beginning of the year to more than 6%, and pushing the average monthly mortgage payment up about $750, or 83%,” says Forbes.
“It is awful that our only tool for controlling inflation is to throw the most disadvantaged workers out of their jobs. It is even worse if we make these people unemployed for nothing,” says The Guardian.
Backing up a bit
As we previously reported, the Federal Reserve hiked interest rates on Wednesday by another 75 basis points, for the third time in 2022. The Fed is attempting to slow the economy down and stabilize the inflation rate, to decrease it from 8.3% to 2%.
The Bank of England, European Central Bank, and Switzerland’s central bank all similarly followed suit with their own interest rate hikes of 75 basis points each this week, except for UK’s central bank which only instituted a 50-point hike.
Fed Chair Jerome Powell understood the dangers of hiking, acknowledging that the burdens that will come with it will fall “most heavily on those least able to bear it.” The decision is likely to stifle economic growth and soften labor market conditions at the cost of households and businesses.