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 string of interest rate hikes. rates that make a multitude of debt deals, including new mortgages, credit cards and some student loans, more expensive.
“Now is the time to aggressively pay off high-cost credit cards,” Bankrate chief financial analyst Greg McBride said in emailed comments, pointing out that almost all credit cards come with a match. variable interest rates that fluctuate in parallel with the federal funds rate determined by the Fed.
Fueled by Fed hikes, mortgage rates hit their highest level since the Great Recession, dropping from nearly 3.8% at the start of the year to around 6%, pushing up the average monthly mortgage payment around $600.
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 5.5% from about 3.25% two years earlier.
Although federal student loans are issued at fixed rates (meaning existing loans will not be affected), private loans, which represent 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”.
“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.”
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, 75 basis points for the second month of a row. At a press conference after the announcement, Fed Chairman Jerome Powell acknowledged that the hikes – the largest since 1994 – are “unusually” large, but said they could still be appropriate for fight inflation in September.
$15.9 trillion. That’s the amount of US household debt at the end of the first 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.
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