The Federal Reserve is widely expected to announce its eighth consecutive rate hike at this week’s policy meeting.
This time, Fed officials likely will approve a 0.25 percentage point increase as inflation starts to ease, a more modest pace compared to prior moves.
Regardless, any boost in the benchmark rate means borrowers will pay even more interest on credit cards, student loans and other types of debt.
On the flip side, savers could benefit from higher yields.
Pocket Plastic:
Most credit cards have a variable interest rate, there’s a direct connection to the Fed’s benchmark %.
As the federal rate rises, the prime rate does, too, and credit card rates follow suit. Cardholders usually see the impact within a few billing cycles.
Buying Power:
Although 15 and 30 year mortgage rates are fixed and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.
The price bracket which you were once a viable shopper in, you are likely no longer able to qualify for. This is causing demand for more modestly priced properties while higher valued properties are starting to sit longer.
Motoring:
Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans.
If you are planning to buy a car, you’ll shell out more in the months ahead.
The average interest rate on a 60 month new car loan is currently 6.18%, up from 3.96% at the beginning of last year.
Indoctrination:
Federal student loan rates are also fixed, so most borrowers won’t be impacted immediately by a rate hike.
The interest rate on federal student loans taken out for the 2022 – 2023 academic year already rose to 4.99%, up from 3.73% last year and 2.75% in 2020-21. Any loans disbursed after July 1 will likely be even higher.
Stashing Cash:
On the upside, the interest rates on some savings accounts, money markets and CD’s are higher after a run of rate hikes.
While the Fed has no direct influence on deposit rates, the rates tend to be correlated to changes in the target federal funds rate.
The savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.33%, on average.
Final Thoughts…
If you’re able to live as close to breakeven as humanly possible, you can live in peace without the stress of worrying about what is out of your control. Let’s face it, the interest rate will always be out of our control.
We have to consider what we are able to control. Keep the debt exposure as low as possible. If you’re leveraging debt to grow your net worth, that’s one thing. But if you’re living on pocket plastic that’s certainly another.
I’ve used the extra income from trading to pay down my debt and if you believe you’re able to do the same for yourself, I’m here to help you . . .