Fed rate hikes affect you

The Federal Reserve on Wednesday announced the sixth interest rate hike of the year in a bid to fight inflation. It was the fourth consecutive increase of 0.75 percentage points in 2022. “The impact of what has been done is not yet fully reflected”, says Chester Spattprofessor of finance at the Tepper School of Business at Carnegie Mellon University and former chief economist of the Securities and Exchange Commission.

“Inflation has not come down much so far, in part because these policies are slow to kick in…the impacts on the consumer have created potentially difficult economic circumstances and are likely to get significantly worse. as we get more and more rate hikes in.” Here’s what to expect, according to the experts.

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Homeowners beware, mortgage rates are at record highs. “Rates resumed their record high, with the 30-year fixed rate mortgage hitting its highest level since April 2002,” Said Sam KhaterFreddie Mac’s chief economist.

“Demand has completely plummeted. Affordability was already strained by soaring house prices. When you add to that this unprecedented pace of mortgage rates, it compounds the problem.”

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The average interest rate for a new car loan over 5 years has fallen from 3.86% at the start of 2022 to 5.63%, and could even go up to 6%. “Auto loan rates are the highest they’ve been in 11 years,” McBride says. The car’s list price causes affordability issues, McBride says. “It’s the $45,000 or $50,000 people are borrowing that’s the problem.”

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What about retirement accounts? “Rising Interest Rates Affect Stocks and Bonds in Different Ways,” Says a Certified Financial Wellness Facilitator Terry Turner. “Stocks historically lose value during periods of higher interest rates, and they tend to suffer more during high inflation. This trend tends to reverse when interest rates start to fall again. Bonds and other fixed income investments tend to perform better than stocks in high interest rate environments Bonds, for example, are still likely to lose value, but not as much as stocks and only in the short term Lower interest rates make existing bonds more valuable.

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Personal spending may decline as people feel the slump and try to cut back on non-essential spending. “Borrowers are feeling the pressure from both sides as inflation has weighed on household budgets while borrowing costs for homebuyers, car buyers and credit card borrowers have risen at the fastest rate. fast for decades”, said McBride.

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Credit card rates will rise, experts warn. “It’s very important for people to know that their credit card rates are going to go up,” says Beverly Harzogcredit card expert and consumer credit analyst for US News and World Report. “And if you have credit card debt, it’s time to take action to get rid of it.”