Here's a Yahoo Finance report on The Fed's interest rate decision, to raise the Fed Funds interest rate 3/4% or 75 basis points, which was announced about an hour and a half ago, as I write this.
What does that mean to you, an average American working person? Interest rates elsewhere also go up, ripples, in a sense, from The Fed's decision. The average 30 year fixed mortgage rate has gone from around 3% at the beginning of 2022, to 6.1% - 6.2% now. The Fed also signaled that it plans to raise interest rates at least another 1.75% by the end of 2022. That means the 30 year fixed mortgage rates should go up to at least 7.85% to 8%, by Christmas time. The Fed keeps having to do more to combat inflation than it expects, so that 30 year fixed rate could wind up 8% to 10% by the end of this year.
Debt of all kinds just got a lot more expensive, for businesses, all levels of governments, and individual people. That means mortgages, student loans, auto loans, credit card debt, and everything else will charge you quite a bit more, in interest, in future months and years. The plus side is that you should get a little bit more interest on savings, CD's, and interest bearing investments. But if you get less than 8.6% interest, you're still losing buying power overall.
The official reason The Fed raised rates is to slow down inflation, which they want to see drop from May's CPI rate of 8.6% officially, to 2%, or slightly under 2%. The Fed originally was planning to raise rates y .5% today, but the latest inflation number was higher than expected last week. That gave them reason to consider either a .75% rise, or a 1% rise, at this meeting. The Fed has put themselves in a no win situation at this point. And they caused this high inflation in the first point, by excessive new money creation in 2022-2021, but they won't admit it. Anyhow, if they did a .5% rate hike, it would look like they were cowing to Wall Street, which they've done for years, until the last couple of months.
The .75% hike, the highest since 1994, was the safe bet for them, higher than initially expected, signaling they are actually trying to combat inflation. Since that possibility of a 3/4% rate hike led to the last several day's stock market losses, Wall Street will celebrate today, and perhaps a few days, with a small rally. That's kind of a "Whew, glad it wasn't worse" move. Inflation may very well come in higher next month, and perhaps a month or two after that. If The Fed did a full 1% rate hike today, it would signal that they are really trying to slow down inflation quickly, but stocks would have dropped more, and we would move quicker towards a serious recession. I think a serious recession is inevitable at this point, but the "experts" are still arguing that point. Remember we never officially know we're in a recession until its over, in most cases.
For you, average working person, all your adjustable rate debt will now become more expensive. Future debt you take on in coming months, and probably will be more expensive. The real estate market will continue to slow down, and stocks will, in my opinion, continue trending down, overall all summer. Interest on savings will go up, but not much. If you get paid 1% interest on savings now, you are still losing 7.6 cents, per year, on every dollar in buying power. If you try to refinance any kind of debt, interest rates will be significantly higher, and it will be harder to qualify, in general. This interest rate rise will slow down the economy overall, driving us harder towards another recession (we might be in it already). A new wave of layoffs has begun, and there will be plenty more. The less debt you have, the better shape you're in, generally speaking, for the next 2-3 years. We are going to start seeing a bunch of bankruptcies, and probably one or more very large businesses, going bankrupt in 2022.
So that's where we're at, right now, as of June 15th, 2022. This blog is just getting going, and a big part of it will be looking at ways to survive, and hopefully even thrive, in the crazy decade of the 2020's. Much more to come. Thanks for reading.
If you feel like this guy above when your credit cart rates jumps 3/4% in one day, you're not alone... Get up, cuss a little, dust yourself off, and keep going. Unknown rider at Boozer Jam 2022, Sheep Hills, Costa Mesa, California. #steveemigphotos, #SEstreetlife
BTW, in 1994, the last time there was a .75% rate hike, Orange County, California went bankrupt. But that's a crazy story, and it was a long time in the making.
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