NEW YORK (AP) — Mortgage rates jumped, home sales fell and credit cards and car loans became more expensive. However, the savings rates are a bit juicier.

Still, with the Federal Reserve sharply raising interest rates, many economists say they fear a recession is imminent in the coming months — and with it job losses that could strain households already hit hardest by inflation. .

Even before the Federal Reserve moves again on Wednesday to raise its key short-term rate sharply — likely to announce a third consecutive three-quarter point hike — its previous rate hikes are being felt by households across the economy.

The Fed’s latest move is expected to raise the key rate to a range of 3% to 3.25%, the highest level in 14 years. Steady rate hikes make it increasingly expensive for consumers and businesses to borrow money for homes, cars and other purchases. And there will almost certainly be new campaigns. Fed officials are expected to signal on Wednesday that their key rate could reach 4.5% by early next year.

Here’s what you need to know:

HOW DO INCREASE IN INTEREST RATE REDUCE INFLATION?

If one definition of inflation is “too much money chasing too few goods,” then by making it more expensive to borrow money, the Fed hopes to reduce the money supply, ultimately lowering prices.

WHICH CONSUMERS ARE MOST AFFECTED?

Anyone borrowing money to make a big purchase, such as a home, car or major appliance, will take a hit, said Scott Hoyt, an analyst at Moody’s Analytics.

“The new rate significantly increases your monthly payments and costs,” he said. “It also affects consumers who have a lot of credit card debt — it’s going to have an immediate impact.”

However, Hoyt noted that household debt payments as a share of income remain relatively low, although they have increased recently. So even as borrowing rates rise steadily, many households may not immediately feel a much heavier debt burden.

“I’m not sure that interest rates are the main issue for most consumers right now,” Hoyt said. – It seems that they are more concerned about the products and what is happening at the gas station. Rates can be a difficult thing for consumers to wrap their minds around.”

HOW DOES THIS AFFECT CREDIT CARD RATES?

Even before the Fed’s decision on Wednesday, credit card rates hit their highest level since 1996, reports Bankrate.comand they are likely to continue to grow.

And with rampant inflation, there are signs that Americans are increasingly relying on credit cards to keep up with their spending. Total credit card balances topped $900 billion, according to the Federal Reserve, a record high, although that amount is not adjusted for inflation.

John Lear, chief economist at research firm Morning Consult, said its survey shows that more Americans are spending the savings they accumulated during the pandemic and using credit instead. After all, rising rates could make it harder for these families to pay off their debt.

Those who do not qualify for low rate credit cards due to poor credit scores are already paying much higher interest on their balances and will continue to do so.

With rising rates, zero-interest loans marketed as “Buy Now, Pay Later” have also become popular with consumers. However, longer-term loans with more than four payments offered by these companies are subject to the same increased rates as credit cards.

For people who have lines of credit or other debt with variable interest rates, rates will rise by about the same amount as the Fed hikes, usually over the course of one or two payment cycles. That’s because these rates are based in part on the bank’s prime rate, which follows the Fed rate.

WHAT IF I WANT TO BUY A CAR?

Auto loans reached their highest level since 2012 Bankrate.comGreg McBride. Rates on new auto loans are likely to rise by nearly as much as the Fed’s rate hike. That could drive some lower-income buyers out of the new-car market, said Jessica Caldwell, executive director Edmunds.com.

Caldwell added that not all of the increase is passed on to consumers; some automakers subsidize rates to attract buyers. Bankrate.com says a 60-month new car loan averaged just over 5% last week, up from 3.86% in January. A 48-month used car loan was 5.6%, up from 4.4% in January.

According to Caldwell, many low-income buyers have already been priced out of the new car market. Automakers have been able to get better money for their cars because demand is high and supply is low. For more than a year now, the industry has been grappling with a shortage of computer chips that has slowed factories around the world.

HOW ARE ECONOMICS APPLIED?

Rising yields on high-yield savings accounts and certificates of deposit (CDs) have pushed them to levels not seen since 2009, meaning households may want to boost savings if possible. Now you can also earn more from bonds and other fixed income investments.

While savings, CDs, and money market accounts typically don’t track Fed changes, online banks and others that offer high-yield savings accounts may be an exception. These institutions usually compete aggressively for depositors. (The catch: they sometimes require very high deposits.)

In general, banks tend to capitalize on the higher rate environment to increase their profits by charging higher rates to borrowers without necessarily offering juicer rates to depositors.

DOES IT CALM OUT RENTAL STATUS? HOME OWNERSHIP?

The average fixed mortgage rate topped 6% last week, a 14-year high, meaning home loan rates are roughly double what they were a year ago.

Mortgage rates don’t always move perfectly in tandem with Fed hikes, instead tracking the expected yield on the 10-year Treasury note. The 10-year Treasury yield reached nearly 3.6%, the highest level since 2011.

Asking rents are up 11% from last year, said Daryl Fairweather, an economist at brokerage Redfin. But price growth has slowed, and some renters are moving to more affordable areas.

WILL IT BE EASIER TO FIND A HOME IF I’M LOOKING AWAY TO BUY?

If you have the financial means to buy a home, you likely have more options than ever last year. Sales of both new and existing homes have been steadily declining for months.

HOW DID THE RATE RAISE AFFECT CRYPTO?

Cryptocurrencies such as Bitcoin fell in value after the Fed started raising rates. So are many previously highly valued technology stocks. Bitcoin has fallen from a peak of around $68,000 to less than $20,000.

Higher rates mean that safe-haven assets like Treasuries have become more attractive to investors as their yields have increased. This in turn makes risky assets like tech stocks and cryptocurrencies less attractive.

However, Bitcoin continues to suffer from problems separate from economic policy. Two major crypto firms have collapsed, shaking the confidence of crypto investors.

WHAT DOES A RATE INCREASE ANNOUNCE?

Short answer: inflation. Over the past year, inflation reached a painful 8.3%. So-called core prices, which exclude food and energy, also rose faster than expected.

Fed Chairman Jerome Powell warned last month that “our responsibility to ensure price stability is unconditional” – a remark widely interpreted to mean that the Fed will fight inflation by raising rates, even if it means major job losses places or recession.

The goal is to slow consumer spending, thereby reducing demand for homes, cars, and other goods and services, ultimately cooling the economy and lowering prices.

Powell acknowledged that aggressive rate hikes “will hurt.”

AND MY JOB?

Some economists argue that widespread layoffs will be needed to slow the rise in prices. One reason is that a tight labor market encourages higher wages and higher inflation. In August, the economy gained 315,000 jobs. There are approximately two vacancies for every unemployed person.

“Vacancy continues to exceed the number of jobs, indicating that employers are still struggling to fill vacancies,” said Odette Couchy, an economist at First American.

As a result, some argue that higher unemployment could ease pressure on wages and curb inflation. Research published earlier this month by the Brookings Institution said the unemployment rate could reach 7.5% to push inflation down to the Fed’s 2% target.

WILL THIS AFFECT STUDENT LOANS?

Borrowers taking out new private student loans should be prepared to pay more as rates rise. The current range of federal loans is between 5% and 7.5%.

However, payments on federal student loans are suspended at zero interest until Dec. 31 as part of an emergency measure put in place at the start of the pandemic. President Joe Biden also announced loan forgiveness of up to $10,000 for most borrowers and up to $20,000 for Pell Grant recipients.

IS THERE ANY CHANCE TO REVERSE THE RATE INCREASE?

Stocks rose in August on hopes that the Fed would change course. But it’s looking increasingly unlikely that rates will come down anytime soon. Economists expect Fed officials to forecast that the key rate could reach 4% by the end of this year. They may also signal a further increase in 2023 to as much as 4.5%.

WILL THERE BE A RECESSION?

Short-term rates at these levels would make a recession more likely by increasing the cost of mortgages, auto loans, and business loans. While the Fed hopes that higher borrowing costs will slow growth by cooling a hot labor market and curbing wage growth, there is a risk that the Fed could weaken the economy by triggering a recession that would lead to significant job losses.


AP Business Writers Christopher Rugaber in Washington, Tom Krisher in Detroit and Damien Troise and Ken Sweet in New York contributed to this report.


The Associated Press receives support from the Charles Schwab Foundation for educational and explanatory reporting to promote financial literacy. The independent fund operates separately from Charles Schwab and Co. Inc. The AP is fully responsible for its journalism.”

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