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The Federal Reserve has hiked interest rates for the first time since 2018, partially due to consumer angst and anger about rising inflation. Have you seen the price of gas?
In general, a rate increase is good for savers and we may see some drops in prices of consumer goods. But the hike is not so fabulous for borrowers who will see mortgage and credit card rates jump.
Millennials and younger Generation Z have seen historically low mortgage rates all of their adult lives. First-time home buyers might be shocked, especially as rising interest rates collide with escalating home prices.
Interest rates for mortgages, car and other consumer loans, credit cards and private student loans rise when the federal interest rate is increased. That may happen six times in 2022.
The quarter-point boost on March 16 to 0.25-0.50% could be the first of as many as six increases this year, according to Federal Reserve Chairman Jerome Powell. More increases in 2022 may be needed to battle both inflation, specifically rising cost of food and fuel, and the economic impact of sanctions against Russia for its aggression against Ukraine.
Why the Fed Raises Interest Rates
The Federal Reserve uses the benchmark interest rate to regulate the economy. The higher the interest rate, the more expensive it is to borrow money for purchases such as homes and cars, thus slowing commerce and battling inflation. The lower the interest rate, the less expensive it is to borrow money, thereby charging a sluggish economy.
Since December 2008, in response to the Great Recession, the benchmark rate has been unusually low, starting at near zero percent and rising to 2.25% in December 2018, about a year before the pandemic struck.
In response to the economic calamity caused by the pandemic, the interest rate dropped again to near zero in March 2020 and has not changed until now.
Thanks to the improving economy, supply chain issues and the Russian-Ukrainian conflict, inflation has…
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