Student rates

Here’s what could cost more as the Fed raises interest rates

Topline

The Federal Reserve on Wednesday raised interest rates for the first time in more than three years in an effort to combat the fastest price spike in more than 40 years, launching a series of rate hikes that will lead a multitude of debt issues, some of them student loans, credit cards and future mortgages — more expensive.

Highlights

“Now is the time to aggressively pay off high-cost credit cards,” Bankrate chief financial analyst Greg McBride said in emailed comments, pointing out that almost all credit cards come with a match. variable interest rates that fluctuate in parallel with the fed funds rate determined by the Fed.

A rate hike alone is unlikely to have a huge effect on small items, including auto financing, but McBride notes that uncertainty remains about how many more interest rate hikes will occur this year as the Fed seeks to fight inflation amid soaring oil prices. .

Although federal student loans are dispensed with fixed rates which will not be affected, private loans — which represent approximately 8% of the market with some $131 billion in loans exceptional– often come with variable rates that rise after Fed hikes.

“Market volatility and wartime uncertainties have dampened rising mortgage rates,” but McBride warns that home equity lines of credit almost always come with variable rates that would have an almost immediate impact, and that fixed rates will likely start to increase for new mortgages. ; the average 30-year fixed rate mortgage go from 3.4% to 4.9% during the last Fed hike cycle.

A bright spot? “The outlook for savers is improving,” McBride says, noting that high-yield savings accounts and certificates of deposit will boost payouts, even though most banks “are likely to be stingy in passing on rates higher”.

Peg News

Fed officials announcement an interest rate hike of 25 basis points following their two-day policy meeting on Wednesday afternoon, as was largely expected.

To monitor

In a statement Wednesday, Fed Chairman Jerome Powell said officials believed “continued increases in the target range would be appropriate,” but he refrained from indicating how many rate hikes there might be. have this year. “With inflation likely to remain uncomfortably high all year, the [Fed] will probably only [stop raising rates] whether it thinks further tightening risks pushing the economy into recession,” Goldman Sachs economist David Mericle wrote in a Monday note to clients. Goldman expects the Fed to raise rates by 25 basis points at each of its remaining seven meetings this year, with a possible one-basis point hike if downside economic risks stemming from Russia’s invasion of Ukraine diminish. .

Large number

$15.6 trillion. That’s the amount of US household debt last quarter – the highest amount on record, according to the New York Federal Reserve. Although most of it is contained in fixed-rate mortgage debt, the overall figure rose by the largest amount in 14 years in the last quarter, as rapidly rising house and auto prices pushed mortgage balances up by $258 billion. of $181 billion and auto loans of $181 billion. Credit card balances, on the other hand, rose by $52 billion, while student loan debt actually shrank by $8 billion.

Further reading

The long-awaited Federal Reserve rate hike is here: Powell announces a 0.25% hike (Forbes)

Inflation soared 7.9% in February to its highest level in 40 years amid growing uncertainty over record gasoline prices (Forbes)

Fed meeting minutes signal March interest rate hike still on track (Forbes)