The Federal Reserve may be set to announce the biggest rate hike since the 1990s. Here's how that would impact your wallet.
If the Fed decides on a three-quarter point boost, it would be the first rate hike of that size since 1994. Analysts at Deutsche Bank said in a report on Tuesday that they expect 0.75% hikes at the central bank's meetings both this week and in July, underscoring what they called a"need for speed" in clamping down on inflation.
"It was just a few weeks ago that investors were forecasting the funds rate to be ~2.58% at the end of this year, but that number is now more than 100 [basis points] higher at 3.7%," analyst Adam Crisafulli of Vital Knowledge told clients in a research note."And the 'terminal' funds rate is now seen north of 4%."What will the rate hike cost you?
By early 2023, the federal funds rate could be 3.75% to 4%, according to TD Macro. That implies a rate increase of at least 2.75% higher than the current federal funds rate of 1%. For consumers, that means they could pay an additional $275 in interest for every $10,000 in debt. amid various headwinds, including the impact of high inflation and the Fed's monetary tightening. But a bigger-than-expected interest rate increase on Wednesday"could be welcomed by stocks," Crisafulli said.
Credit with adjustable rates may also see an impact, including home equity lines of credit and adjustable-rate mortgages, which are based on the prime rate. Mortgage rates have already surged in response to the Fed's rate increases this year. The average 30-year mortgage stood at 5.23% on June 9, according to Freddie Mac. That's up from 2.96% a year earlier. of buying a property.
The housing market reflects one part of the economy where the Fed's rate increases are slowing demand. Channel added:"These high rates have significantly dampened borrower desire to refinance current loans, and they're also showing signs of reducing demand for purchase mortgages as well."When it comes to higher interest rates, the bright side for consumers is better yields from savings accounts and certificates of deposit.
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