Federal Reserve raises interest rate to cool off inflation
ATLANTA - For the first time since 2018, the Federal Reserve has raised its interest rate. Economists say it’s necessary to reign in inflation, but it will come with a short-term cost to your wallet.
The Fed’s rate went up a quarter of a point. The central bank’s interest rate had been at nearly zero since March 2020. But Wednesday the Federal Reserve raised to the interest rate to bring down growing inflation.
The pandemic and its tentacles got us here. It slowed the global economy which led to supply chain issues. Then, there was a lot of government spending by both the Biden and Trump administrations and approved by Congress to help out families. What we have now is money in our pockets but not enough goods to buy, so prices are inflated. To cool off inflation, the interest rate is raised, which slows down spending, allows goods to fill the shelves again, and settles down the economy.
But it will still hurt a bit longer. Let’s talk about how. Mortgage rates were already moving up. A 30-year fixed loan averages today 4.47 percent. This puts it back at 2019 levels. It’s still low, but higher than what we’ve been used to.
Here’s where you’ll feel it. CREDIT CARDS. This rate hike will push up your interest rate. If you don’t carry over a balance you’re fine. If you do, you’ll pay more monthly. Listen, if you’ve received a zero interest balance transfer offer, do that now! PRIVATE STUDENT LOAN BORROWERS. Your loan rate is mostly likely variable. It moves with the market. Federal student loans are fixed, so they do not. HOME EQUITY LINES OF CREDIT. HELOC borrowers will feel the pinch.
Car loans should be OK for now. There are so many more variables associated with this than a home loan. Even if interest rates here go up, it’s likely it won't mean you can't get a vehicle you were planning to buy.
Think of it this way: You have broken your arm. If you don't get medical intervention, it will get worse. When you do reach out for help, that will hurt too before it gets better. The U.S. economy has a broken arm, and we are in the ER waiting to re-set it and to get a cast.
This is the first in a few more rate hikes expected in 2022 by the Federal Reserve.