What the federal interest rate hike means for you
NEW ORLEANS (WVUE) - Battling the worst inflation in 40 years, the Federal Reserve raised a key interest rate Wednesday.
It is the Fed’s most aggressive move in 22 years, raising the Federal Fund Rate by a half-percentage point.
“Given the level of inflation and given the level of fiscal and monetary stimulus that the country has received over the last couple of years, better that they do something today, then kick the can down the road,” Morgan Stanley’s Managing Director, James Spiro said.
It may cause pain along the way with price pressures already weighing on Americans everywhere from the grocery store to the gas pump, but Spiro said interest rates have been suppressed for the better part of 15 years.
“I think part of the reason that this seems so stunning is because the recent framework with which people are viewing this is an environment of 0-percent interest rates and that’s not normal,” Spiro said. “I think it’s unlikely that you will see interest rates anywhere near the levels that they were 20 years ago, never mind 40 years ago when they were several hundred basis points higher.”
The Fed is rolling back the stimulus it pumped into the economy during the pandemic, an effort to tame skyrocketing inflation, raising by half a percentage the Federal Funds Rate, which is the rate at which banks borrow and lend to one another.
“The Federal Funds Rate is the benchmark from which virtually every other interest rate in this country flows,” Spiro explained.
So, it bleeds through into higher interest rates on credit cards, which are mostly over 16-percent right now, as well as student, auto, and business loans. You might have already noticed a raise in anticipation of this move.
It also translates into higher mortgage rates which are currently over 5-percent
“You keep having rising rates, rising prices, that’s a double whammy for people’s monthly payments. The interesting thing is though, that we’ve got such short supply in the market that it hasn’t really slowed the market down a bit,” John Sibley with the Sibley Group at Keller Williams Realty said.
Sibley said it is very competitive for buyers right now, definitely a seller’s market with extremely high prices.
“One other thing we’re seeing is that people are maybe more reluctant to move out of that house that they have a 2.8% interest rate when they’re faced with a five and a half-percent interest rate,” Sibley said.
The Central Bank has suggested it will further raise borrowing costs throughout this year.
See a spelling or grammar error in our story? Click Here to report it. Please include the headline.
Copyright 2022 WVUE. All rights reserved.