(RoyalPatriot.com )- Last month, the Federal Reserve raised the federal funds rate by 75 basis points to a target range of 3 to 3.25 percent, the highest level since 2008, and experts expect another 75 basis point rate hike at November’s meeting as well.
Fed officials expect to raise rates to 4.4 percent by the end of 2022, and 4.6 percent next year, teeing up another 125 basis points of tightening this year.
Federal Reserve Chairman Jerome Powell said the Central Bank needs to get to a “more meaningfully restrictive policy stance” which must be maintained “for some time” to get inflation down. Powell said achieving a “soft landing” would be challenging at this point and would depend on how quickly price pressures come down.
The Fed projects that the economy is poised to contract this year, growing only 0.2 percent in 2022 before rebounding to 1.2 percent next year and 1.7 percent in 2024. The unemployment rate is also projected to begin rising next year to 4.4 percent.
According to Powell, if the Fed’s projections are correct, it could lead to a good outcome.
But according to Roberto Perli from Piper Sandler, there has never been an instance when unemployment rises more than half a percent without the economy entering a recession.
With the federal funds rate increase, consumers can expect to see an increase in their credit card’s annual percentage rate (APR) which determines how much interest consumers pay for outstanding balances at the end of the month.
In early 2022, the average APR was about 16 percent. With last month’s increase, consumers can expect an APR of closer to 19 percent.
While federal funds rate hikes don’t affect existing fixed-rate car loans, the hike will increase interest costs for new auto loans and auto loans with variable-rate financing.
In early 2022, the average interest rate on a 60-month auto loan was 3.85 percent. With the latest increase, that could increase to between 5.5 and 5.75 percent.
Mortgage rates on new home purchases will also increase.
Since the start of the year, mortgage rates have doubled, climbing from 3 percent to over 6 percent.