The effects of an interest rate hike: If your house suddenly becomes 25 percent more expensive

Status: 06/18/2022 02:31

Record inflation has plagued Americans for months. Now the Fed has reacted vehemently. This leads to enormous turbulence, especially in the real estate market.

Author: Reinhard Baumgarten, ARD Studio Washington

Jerome Powell hit the brakes hard Wednesday. The head of the US Federal Reserve said that it was necessary to lower inflation and announced that the base interest rate would be raised by as much as 75 basis points.We are raising interest rates. It affects the financial situation. And that affects the economy. ”

And it affects many people’s lives. Sample Credit Cards: In the United States, there are over 530 million credit card accounts totaling $ 860 billion in debt. The annual interest rate on these debts is an average of 19 percent. Paying off this debt is getting more and more expensive because, according to financial expert Greg McBride of the AP news agency, all financial institutions rely on the Fed’s prime interest rate.

Now that the Fed is raising interest rates, credit cards and other interest rates will go quite fast.

Biden tries to calm down

Prices in the US have been rising for months. In May, inflation was 8.6 percent. Fuel prices have doubled during the year. The reasons for this are different. People are being hit by price increases, so they need to be relieved, argues Joe Biden. Promises to have a plan to cut fuel and food costs President. It is unclear when his plan will come into effect.

The US Federal Reserve wants to lower inflation by raising interest rates. It is still unclear how soon the measures will take effect and the cost of living will actually come down. That’s why Karolina thinks Boldy discusses alternatives, he tells a Reuters reporter while refueling his SUV.

Maybe now is the time to cycle or scooter more whenever possible. We are thinking of switching to an electric car. These are the things that come to my mind right now.

Soaring mortgage rates

The consequences of the interest rate hike are likely to result in sleepless nights for homeowners who have mortgaged their homes. Because, according to financial expert Greg McBride, “mortgage rates are ahead of the Fed.” There has been an unprecedented increase in mortgage rates since the beginning of the year.

We are witnessing one of the fastest and longest increases in mortgage rates in history. In anticipation of the Fed’s rate hike, they have increased by a full 3 percent in the last ten months. For future home buyers, this has the same effect as a price increase of 25 percent.

The interest rate on mortgage loans is now 5.78 percent. A year ago it was 2.93 percent. It is not at all clear whether building materials will actually get cheaper with hopefully falling inflation. The rising cost of financing a home should make many builders and women wonder.

The Fed wants to tighten interest rates further

Because the Fed will continue to tighten interest rates. According to Fed chairman Powell, the target is to hit the key interest rate of 3.5 to 4 percent in the coming year. Financial expert McBride predicts that the more the Fed raises interest rates, the more serious the problems for the economy will be. “This increases the risk of a sharp slowdown or even a recession.”

With inflation at its 40-year high and interest rates at a record low, a recession could be the price to pay to contain inflation. But if inflation is brought down at the expense of a recession then other misfortunes lurk: job losses, unemployment and lost incomes for millions of Americans.

The effects of the interest rate hike for US residents

Reinhard Baumgarten, ARD Washington, 6/18/2022 06:38

Leave a Comment