Status: 06/18/2022 02:31 a.m
Record inflation has been plaguing Americans for months. Now the Fed has reacted violently. This is leading to immense turbulence, especially on the real estate market.
Jerome Powell hit the brakes hard on Wednesday. It is essential to lower inflation, said the head of the US Federal Reserve and announced the increase in the key interest rate by a whopping 75 basis points. “We raise the key interest rate. This affects the financial situation. And that affects the economy.”
And it affects the lives of many people. Example credit cards: In the US there are more than 530 million credit card accounts with a total of 860 billion dollars in debt. On average, these debts carry an annual interest rate of 19 percent. Paying off this debt is becoming more expensive because, according to financial expert Greg McBride to the AP news agency, all financial institutions are based on the Fed’s key interest rate.
Now that the Fed is raising interest rates, credit card and other interest rates will follow fairly quickly.
Biden tries to calm down
Prices have been rising in the US for months. In May, the inflation rate was 8.6 percent. Fuel prices have doubled within a year. The reasons for this are diverse. Price increases are affecting people and that is why they need to be relieved, urges Joe Biden. He promises to have a plan to cut fuel and food costs President. It is unclear when his plan will take effect.
The US Federal Reserve wants to lower inflation by raising interest rates. It is still unclear how quickly the measures will take effect and the cost of living will actually drop. That’s why Carolina thinks Boldy discusses alternatives, as she tells a Reuters reporter while filling up her SUV.
Maybe now is the time to cycle more, or scooter whenever possible. We are thinking about switching to an electric car. Things like that are going through my head right now.
Sharp increase in mortgage interest rates
The consequences of the interest rate hike are likely to cause sleepless nights for homeowners who have mortgaged their homes. Because, according to financial expert Greg McBride, “mortgage rates are ahead of the Fed.” Since the beginning of the year there has been an unprecedented increase in mortgage interest rates.
We are witnessing one of the fastest and longest rises in mortgage rates in history. In anticipation of the Fed’s rate hike, they have risen a full 3 percent over the past ten months. For future homebuyers, this has the same effect as a price increase of 25 percent.
Mortgage rates are currently at 5.78 percent. A year ago they were 2.93 percent. It is by no means clear whether building materials will really become cheaper with hopefully falling inflation. The increasing financing costs for your own home should make many builders and women ponder.
Fed wants to keep tightening interest rates
Because the Fed will continue to tighten interest rates. According to Fed Chairman Powell, the goal is a 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 severe the headwind for the economy will be. “That increases the risk of a sharp slowdown or even a recession.”
With inflation at a 40-year high and interest rates at record lows, a recession may be the price to pay to bring inflation under control. But if inflation is brought down at the expense of a recession, then other calamities lurk: job losses, unemployment and lost incomes for millions of Americans.