Five Ways the Federal Reserve’s Rate Hike Will Affect Your Finances

The Federal Reserve raised rates again for the third time in a series of “supersize” rate hikes that Fed Chairman Jerome Powell said should continue to try to bring inflation down aggressively.

The Fed is on a historic campaign to try to push borrowing costs high enough to lower a 40-year high for inflation in the US economy.

Credit card fees

Credit card debt will become more expensive as the Federal Reserve raises rates. Interest rates for consumers debt “tend to track the federal funds rate,” Forbes reported.

The Fed’s key interest rate affects how much commercial banks charge each other for short-term loans. The higher the Fed rate, the more expensive it is to borrow money, even between financial institutions.

RELATED: Rising interest rates are forcing families into the ‘credit card trap’

Immovable

After the Federal Reserve raised interest rates again on Wednesday, sales of existing homes are expected to fall.

The number of homes sold in the United States fell about 20% in August 2022 compared to the same period a year earlier, the National Association of Realtors (NAR) said in a recent report.

NAR said based on the seasonally adjusted annual rate of 4.80 million homes sold, it was down from 5.99 million a year ago.

Short-term, floating-rate home loans, like adjustable-rate mortgages (ARMs) and home equity loans (HELOCs), are tied directly to the Federal Reserve funds rate, so mortgage rates these loans will follow Fed policy hikes. assess hikes, Forbes reported.

Savings account rates are rising, which is good for savers

The higher the Fed’s policy rate, the greater the impact on savings account returns.

Although there is no direct link between federal funds and deposit rates, according to Forbes, banks have been observed slowly increasing annual percentage yields (APY) on deposit accounts.

These deposit accounts include savings accounts. Financial institutions do this to attract more deposits so they have more money on hand.

Deposit account certificate rates are also increasing.

Greg McBride, CFA and Chief Financial Analyst at Bankrate, said“Rising rates are good for savers – if you’re looking in the right place.”

He said: “The best performing savings accounts and certificates of deposit available nationally have increased significantly since the start of the year and are now at the highest levels since 2009.”

“Of course, gaining 2.5% or 3% isn’t all that exciting when inflation is north of 8%, so continued rate hikes should bode well for savers – pushing yields higher. and possibly lower inflation,” McBride said.

Stock and Cryptocurrency Investors Will See Changes

Experts say investors should see heightened stock market volatility and sudden declines as the Federal Reserve has signaled it will continue to raise rates until inflation is under control.

People who watch the financial news will have noticed that the S&P 500 has spent 2022 in a slump amid rate hikes as investors wait for rates to halt or come back down.

Cryptocurrencies have felt the heat since late 2021 as the Federal Reserve announced its plan to reduce liquidity in the US financial system, Reported discount rate.

Digital currencies like Bitcoin, Ethereum and others had been on a solid and steady downtrend for months before crashing.

Changes will be seen in the US federal government

The US national debt is approaching $31 trillion. The government will face historic challenges as it borrows new money. That said, as reported by Bankrate, interest rates on debt are still considered historically at attractive levels, depending on your perspective.

Yields on 10- and 30-year Treasury bills are well below inflation, economists note. As inflation remains above interest rates, the government can take advantage of the situation.

Economists have noted that the more the government’s budget deficit isthe more people tend to save in anticipation of higher future taxes.

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