How does the Federal Reserve interest rate hike affect you?

Interest rates will start to climb on cars, houses, credit cards, and almost anything that requires borrowing money.

The Federal Reserve on Wednesday raised its benchmark rate by a quarter of a percentage point, the first such increase since 2018. And it signaled that six more hikes are coming this year and three more in 2023.

The impact on consumers is expected to be gradual, and even barely noticeable at first. Lenders have often built anticipated increases into their loans, and Wednesday’s increase isn’t that big.

Gokce Soydemir, a Foster Farms professor of business economics at California State University, Stanislaus, advises these steps consumers can take immediately to cushion the blow from further increases:

Switch from a flexible rate loan to a fixed rate loan.

Refinance while interest rates are still low.

Take advantage of 0% credit cards.

Pay off credit card debt if you can.

The biggest potential impact is on housing, as interest rate changes typically result in the highest dollar costs and the commitment tends to last longer than other loans.

The average mortgage interest rate on a 30-year loan in California – now 3.85% – is expected to reach 4.2% by the end of this year, said Jordan Levine, vice president and chief economist at the California Association of Realtors.

Based on a projected median price of an existing home in California of $827,700, a buyer who bet 20% would have a monthly mortgage bill of $4,352 at 3.85%. At 4.2%, that figure would rise to $4,481.

Interest rates go up

The Fed is under pressure to rein in inflation, as price increases hit a 40-year high last month. Higher interest rates generally keep prices low as people become reluctant to borrow and spend.

The Fed on Wednesday set its target federal funds rate, which largely dictates interest rate trends, in a range of 0.25 to 0.50%. The rate has been close to zero for the past two years as the Fed tried to keep the economy healthy during the COVID-19 pandemic.

With six more hikes on the horizon – far more than expected at the end of last year – the rate is expected to reach almost 2% by December.

The Fed explained his actions in a statement: “Russia’s invasion of Ukraine is causing enormous human and economic hardship. The implications for the US economy are highly uncertain, but in the short term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.

The California housing market has already felt the impact of higher rates, as lenders have often factored anticipated increases into their costs.

“The Fed rate hike may not mean that mortgage rates will rise significantly. In fact, this latest rate hike may already be priced into mortgage rates,” said Jacob Channel, senior economics analyst at LendingTree, an online lending marketplace.

In February, the interest rate on a 30-year fixed-rate mortgage averaged 3.76%, down from 2.81% a year earlier, according to Freddie Mac. A five-year adjustable mortgage last month had an average rate of 2.87%, down from 2.83% in February 2021.

To buy a house

The California Association of Realtors said home sales were down from last year, a year when sales were exceptionally strong.

He said the pace of sales last month was down 4.5% from January and 8.2% from a year ago.

“Demand for homes remains strong in California and prices continue to rise in a competitive market environment, but recent headwinds make it unlikely that we will maintain the sales pace seen in 2021,” Levine said.

Real estate agents attributed the slowdown to interest rates, but also to the uncertainty triggered by the Russian invasion of Ukraine.

Such events, combined with the highest inflation in 40 years, undermined consumer confidence.

The monthly housing sentiment index for real estate agents fell slightly last month, as did the measure of consumers who said it was a good time to buy.

The good news: One in four consumers remains hopeful that it will be easier to find a home in the next 12 months.

But consumers may want to keep an eye on these rates.

“Barring major disruptions resulting from the invasion of Ukraine, a new variant of COVID, or a third unforeseen event, rates should continue to rise for the rest of the year,” he said. .

He predicted that mortgage rates would reach 4% by the end of the year and 4.5% “may not be entirely out of the question”.

credit caran advice

Consumers may want to consider repaying or repaying other loans.

Credit card rates will likely rise with the 2nd or 3rd Fed increase, as will lines of credit.

So while there won’t be any surprises, consumers will be hurt by the Fed’s rate hike,” said Mark Schniepp, director of the California Economic Forecast in Santa Barbara.

Advice from Matt Schulz, Chief Credit Analyst at LendingTree: Get a 0% balance transfer credit card or a low-interest personal loan, and see a credit counselor.

“You can even call your credit card issuer and ask them to lower your APR and even waive some fees. You’d be amazed at how often it works,” Schulz said.

This story was originally published March 16, 2022 2:01 p.m.

David Lightman is McClatchy’s chief congressional correspondent. He has been writing, editing, and teaching for nearly 50 years, with stops in Hagerstown, Riverside, California, Annapolis, Baltimore, and since 1981, Washington.


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