Here’s everything that’s costing more as the Fed raises interest rates

Topline

On Wednesday, the Federal Reserve again authorized one of the largest interest rate hikes in 28 years as part of its effort to tackle the fastest price hike in four decades – doubling down on a series of hikes. rates that make a slew of debt deals, including new mortgages, credit cards and some more expensive student loans.

Highlights

“Now is the time to aggressively pay off high-cost credit cards,” says Greg McBride, chief financial analyst at Bankrate, pointing out that almost all credit cards come with variable interest rates that fluctuate alongside. with the federal funds rate determined by the Fed.

Fueled by Fed hikes, mortgage rates hit their highest level since the Great Recession, rising from nearly 3.8% at the start of the year to over 6%, pushing the average monthly mortgage payment higher about $750, or 83%, from before the pandemic, according to Zillow.

Many mortgage companies have begun to suffer from the drop in demand, and Marty Green, director of mortgage law firm Polunsky Beitel Green, notes that the combination of rising house prices, rising interest rates and inflationary pressures has “created too uncertain an environment for many borrowers to go ahead with buying a home.”

Almost immediately after the Fed’s announcement on Wednesday, major banks including Truist, Wells Fargo and JPMorgan raised their prime interest rates, which are used to calculate loan costs, to 6.25% from about 3.25% two years earlier.

Although federal student loans are issued at fixed rates (meaning existing loans won’t be affected), private loans — which make up about 8% of the market with some $131 billion in outstanding loans — are often with floating rates that rise after the Fed. hikes.

A bright spot? “The outlook for savers is improving,” McBride says, noting that high-yield savings accounts and certificates of deposit will boost payouts, even though most banks “are likely to be stingy in passing on rates higher”.

crucial quote

“Rising interest rates mean borrowing is more expensive and saving will end up paying more,” McBride says, adding that households should take steps to “stabilize their finances,” including paying off cards expensive credit and other variable rate debt, and strengthening emergency measures. savings. “Both will make you more resilient to rising interest rates and whatever else might come next economically.”

Peg News

At the end of their two-day policy meeting on Wednesday afternoon, Fed officials said the central bank would raise the federal funds rate, which is the target interest rate at which commercial banks borrow and lend. reserves, by 75 basis points for the third month of a line – pushing the cost of borrowing to the highest level since 2008.

Large number

$16.2 trillion. That’s the amount of US household debt at the end of the second quarter – the highest amount on record, according to the New York Federal Reserve. Although most of it is contained in fixed-rate housing debt, the overall figure has increased at the fastest rate in 14 years, with rapidly rising house and auto prices helping to reduce debt by more than 1,000 billions of dollars over the past year.

Further reading

Fed raises rates another 75 basis points, pushing borrowing costs to highest level since Great Recession (Forbes)

The Dow Jones falls 400 points as the Fed prepares another interest rate hike (Forbes)

Inflation jumped 8.3% in August (Forbes)

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