This Wednesday, by the orders of the US Federal Reserve, interest rates in the US rose to a new high. The vast 0.75 percentage point hike of the Central Bank is supposed to help pull the brakes on rampant inflation.
Since rates started the upward trend in March, this is the third attempt of the Fed to battle what they thought would be transitory inflation.
Higher interest rates mean that debts will cost you significantly more, whether that’s a car loan, mortgage, or credit card debt.
So, what good will this do?
Higher interest rates should slow down the buying frenzy of houses, cars, and other things the average consumer can’t afford without financial help.
The idea is to level out consumers’ demand and production, which is slacking, to keep prices at bay.
But will this be enough to make potential car and homeowners get cold feet? On average, 70%–90% of mortgages in the US have a 30-year fixed rate. So, purchasing now is unwise, to say the least.
The worst part is nobody really knows how long it’ll be before the tides turn consumers’ way.
According to an article in Fortune, it usually takes about a decade to bring down inflation from 5% to just 2%. But today’s year-over-year inflation of 8.3% might take even longer.
To curb this, even though interest rates are nearing their historically highest mark from the early1980s, the Fed officials aren’t planning on bringing the rates down soon.
On the contrary, they anticipate adding 1.25 percentage points to the rates by the end of 2022. This means pushing them upward in each of their final two sessions. Moreover, the Feds’ undisclosed intent is to propel interest rates to a maximal 4.6% in 2023.
Indeed, the homeownership rate could drop even further, but it’ll be worthwhile if this brings down food prices.