Experts say that the Federal Reserve’s Wednesday decision to begin the first in a series to increase interest rates will make U.S. consumers more expensive, as they already pay higher prices for energy and gas.
People who carry balances month to month with variable-interest-rate credit cards will probably be among the first to feel the financial pinch of the Fed’s quarter-percentage-point rate hike.
Kimberly Palmer, NerdWallet’s personal finance expert, stated that “Pretty quickly people will start paying more credit card debt.”
She said that half of U.S. consumers are in credit card debt and that those who don’t pay off their balances within the next month will end up paying more.
It was widely anticipated that the central bank would announce this. The core interest rate is now at its highest level since late 2018. Jerome Powell, Fed Chairman, cited strong economic conditions and low unemployment as reasons for tighter monetary policies. There are several more rate increases in the future.
Experts say that borrowers will be paying more for auto loans and private student loans.
Inflation cooling
Joel Prakken, an American economist at S&P Global Market Intelligence said that raising interest rates could discourage consumers from purchasing homes and cars.
He said that the following effect would help to slow down economic activity and cool off inflation. So, taking a cut in consumer spending is part the plan.
As inflation accelerates over the past five month, consumers are spending more on groceries as well as electricity. reached a 40-year high in February.
Greg McBride is Bankrate’s chief analyst. He stated that while the interest rate hike may not be significant in the short-term, it is the beginning of a series interest rate rises over the next year. “It is the cumulative effect of those interest rate increases that will have an impact on the household budget as well as the wider economy and the job market.”
McBride warned of the possibility of a national recession if the federal funds rates rises above 2.5 percent.
Prakken stated that the most pressing issue for consumers is the rising cost of energy, fuel, and food. The full extent of the rate rise’s effects will not be known until a while.
Experts advise consumers to improve their financial situation by paying off debt.
Jack Gillis, executive director of Consumer Federation of America, stated that “almost everything charged on a card will increase in price.” Consumer credit card debt is a major burden and it is only going to get worse.
Higher interest rates can be a financial advantage for savers.
Palmer stated that people who have money in savings accounts will receive higher yields. These usually move in conjunction with federal rate increases.
She said, “Pay off your credit card debt. Look at your overall spending. Cut back where you can. Save more.”
