How Much Will the Fed Raising Interest Rates Affect You?

US House Select Subcommittee on the Coronavirus Crisis hearing on "Lessons Learned: The Federal Reserve's Response To The Coronavirus Pandemic", Washington, District of Columbia, USA - 22 Jun 2021

The Federal Reserve’s decision to hike interest rates next year will have a wide-reaching impact on both businesses and consumers, mainly through higher borrowing costs. The effects of such an interest rate hike will certainly be felt across the U.S. economy, and perhaps the broader global marketplace.

See: Will the Fed Raising Interest Rates Make Buying a House Harder?
Find: Fed Likely To Hike Interest Rates in June 2022 To Combat Spiking Inflation

If you plan on buying a house or car, for example, you can expect the interest rate on those purchases to creep up once the Fed starts hiking rates — as it’s expected to do as early as June 2022. The average 30-year fixed-rate home mortgage, which has already risen to 3.24% interest, is likely to climb to near 4% by the end of 2022, LendingTree senior economic analyst Jacob Channel told CNBC.

Homeowners who have adjustable-rate mortgages or home equity lines of credit could also be impacted, as both are tied to the prime rate. The potential upside is that higher rates will probably decrease demand for new housing, Channel added, so “would-be homebuyers might find themselves with a greater selection of homes to choose from in 2022.”

Julia Coronado, an economist at the University of Texas at Austin and founder of the firm MacroPolicy Perspectives, said much the same thing during an interview with PBS on Wednesday, Dec. 15 — though she expects a rise in interest rates to be a gradual process without a lot of sudden changes.

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“Over time, as the Fed raises interest rates, consumers should see somewhat higher interest rates for mortgage loans, for car loans, and businesses should see maybe some tighter terms to obtain financing,” she said.

Learn: When Will High-Yield Savings Account Interest Rates Bounce Back?
Explore: Fed Announces Bond Tapering — How Does It Impact Interest Rates?

Coronado also expects to see a slower rate of inflation, which could mean less sticker shock for consumers. And she expects the stock markets and cryptocurrency markets to cool off a bit.

“The stock market’s been really — running really strong,” she said. “We have seen a lot of you might call it froth in areas like cryptocurrencies. And that sort of enthusiasm may see some cooling as the Fed stops injecting liquidity into financial markets.”

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.

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