How Can Increase in Interest Rates in America Can Affect Your Pocket

The Federal Reserve’s move to further tighten credit raised the benchmark interest rate for a second time to 0.75 percent.

With the Fed raising interest rates this time, its fourth since March, the cost of borrowing for homes, cars, and credit cards will rise further.

However, this may not have an immediate impact on many borrowers.

The Fed has been aggressively raising borrowing costs in a bid to slow spending, cool the economy, and combat the worst level of inflation in two generations.

How will all this affect your finances? We will share with you some things related to the impact of the rate hike.

Impact on Home Buyers

High interest rates have decimated the housing market. Rates on home loans have almost doubled from a year ago to 5.5%.

That is, increasing interest rates have the opposite effect on the housing market. However, the Fed has indicated that the cost of credit is likely to rise further.

That’s because mortgage rates don’t necessarily go up when the Fed raises rates. Sometimes they run in the opposite direction as well.

Will It Be Easy to Find a House?

Sales of existing homes have fallen for the fifth month in a row. New home sales declined in June. If you are financially able to afford a home, you likely have more options than you did a few months ago.

Choices are few in many cities. But the number of available homes nationwide is starting to rise after hitting rock-bottom levels late last year.

New Car Shopping

Rate hikes by the Fed generally make auto loans more expensive. But other factors also affect these rates, including competition among car makers, which can sometimes drive down the cost of borrowing.

According to an expert, Wednesday’s rate hike will not have much effect on new vehicle sales, as the Fed’s rate hike does not affect auto loans.

Influence on Credit Card

For users of credit cards, home equity lines of credit, and other variable-interest debt, rates will increase in line with the Fed’s increase.

This will happen in one or two billing cycles. That’s because those rates are based on the banks’ key rate, which is run in conjunction with the Fed.

People who are not eligible for low-rate credit cards may get stuck paying high interest on their balances.

Return on Investment

Now you can earn more on bonds, CDs (convertible debt), and other fixed-income investment options.

And it depends on where your savings, if you have them, are invested. Speaking of crypto, cryptocurrencies like bitcoin have sunk ever since the Fed started raising rates. Bitcoin has fallen from a peak of $68,000 to $21,000.