Fed raises interest rates, how does it affect my economy?

The Fed has raised interest rates for the second time, and now things are changing again: Higher mortgage rates have driven down home sales, credit card rates have become more onerous, just like car loans, savers are finally getting returns that are really visible. while crypto assets are reeling. The Federal Reserve’s decision on Wednesday to further tighten credit raised its benchmark interest rate by a sizable 0.75% for the second time in a row. The Fed’s latest hike, the fourth since March, will further magnify borrowing costs for households, cars and credit cards, though many borrowers may not feel the impact right away. The central bank is aggressively raising borrowing costs to try to slow spending, cool the economy and defeat the worst inflation outbreak in two generations. Fed actions have ended, for now, an era of ultra-low rates that emerged from the Great Recession of 2008-2009 to help rescue the economy, and then resurfaced during the brutal pandemic recession, when the Fed cut its benchmark rate to near zero. Chairman Jerome Powell hopes that by making lending more expensive, the Fed will be able to slow demand for housing, cars and other goods and services. Reduced spending could help inflation, measured most recently at a four-decade high of 9.1%, return to the Fed’s 2% target. A series of higher rates could push the U.S. economy into recession. That would mean higher unemployment, increased layoffs, and more downward pressure on stock prices. Here are some of the most common questions asked about the impact of rising rates: I want to buy a home, what about mortgage rates? Higher interest rates have torpedoed the housing market. Mortgage lending rates have nearly doubled from a year ago to 5.5%, though they have stabilized in recent weeks, even as the Fed has signaled that further credit tightening is likely. That’s because mortgage rates don’t necessarily move in tandem with the Fed’s increases. Sometimes, they even move in the opposite direction. Long-term mortgages tend to track the yield on the 10-year Treasury note, which, in turn, is influenced by a variety of factors. These factors include investor expectations about future inflation and global demand for U.S. Treasuries.Investors expect a recession to hit the U.S. economy later this year or early next year. This would force the Fed to eventually cut its benchmark rate in response. The expectation that the Fed will have to reverse some of its hikes next year has helped push the 10-year yield down from 3.5% in mid-June to about 2.8%. Existing home sales have fallen for five straight months, while new home sales plummeted in June. If you are financially able to move forward with buying a home, you will likely have more options than you did a few months ago. In many cities, the options are few. But the number of homes available across the country has begun to rise after falling to rock-bottom levels late last year. There are now 1.26 million homes for sale, according to the National Association of Realtors, up 2.4% from a year ago. I need a new car, should I buy one now? The Fed’s rate hikes generally make auto loans more expensive. But other factors also affect these rates, including competition among automakers, which can sometimes reduce borrowing costs. Rates for buyers with lower credit ratings are more likely to rise as a result of the Fed’s increases. Because used vehicle prices, on average, are rising, monthly payments will also increase. For users of credit cards, home equity lines of credit, and other variable-interest debt, rates would increase by about the same amount as the Fed’s increase, usually within one or two billing cycles. That’s because those rates are based in part on the banks’ prime rate, which moves in tandem with the Fed.those who don’t qualify for low-rate credit cards could be stuck paying higher interest on their balances. The rates on their cards would increase as the prime rate does. The Fed’s rate hikes have already sent credit card borrowing rates above 20% for the first time in at least four years, according to LendingTree, which has tracked the data since 2018. Now you can earn more on bonds, CDs, and other fixed income investments. And it depends on where your savings are parked, if you have any. Savings, certificates of deposit, and money market accounts generally don’t track Fed changes. Instead, banks tend to capitalize on a higher-rate environment to try to increase their profits. They do this by imposing higher rates on borrowers, without necessarily offering any juicer rates to savers. But online banks and others with high-yield savings accounts are often an exception. These accounts are known to compete aggressively for depositors. The only drawback is that they normally require significant deposits.How have the rises influenced cryptocurrencies? Like many highly valued tech stocks, cryptocurrencies like bitcoin have sunk in value since the Fed began raising rates. Bitcoin has plummeted from a peak at around $68,000 to $21,000. Higher rates mean that safe assets like bonds and Treasuries become more attractive to investors because their yields are now higher. That, in turn, makes risky assets like tech stocks and cryptocurrencies less attractive. All that said, bitcoin is suffering from its own problems that are separate from economic policy. Two major crypto companies have failed. The shaken confidence of crypto investors isn’t being helped by the fact that the safest place where you can park money now, bonds, seems to be a safer move. Right now, federal student loan payments are suspended until Aug. 31 as part of an emergency measure that was implemented early in the pandemic. Inflation means that loan holders have less disposable income to make payments. Still, a slowing economy that reduces inflation could bring some relief for the fall. We recommend you read: Depending on the state of the economy, the government may choose at the end of the summer to extend the emergency measure that defers loan payments. President Joe Biden is also considering some form of loan forgiveness. Borrowers who take out new private student loans should prepare to pay more. Rates vary by lender, but are expected to increase.



Original source in Spanish