MEMPHIS, Tenn. — Just when many expected to get some sort of relief this summer, the U.S. Federal Reserve just made a big move with interest rates showing an increase of 0.75%, and they are expected to keep rising throughout the year.
This is not the first time this year that the Federal Reserve increased the rate.
With inflation soaring, people wanted to see a decrease this year, praying that supply chains would start to correct themselves and companies would return to their norm, but that has not been the case.
It is tough out here for many, especially since there have been no breaks with gas prices, food, and housing cost record highs.
Summit Asset Management Financial Advisor and Partner Lance Hollingsworth said this is the Federal Reserve’s way of regaining control over the economy.
It is the first time the U.S. has seen an increase in interest rates this high in nearly three decades, and there is a number of factors that have lead to this costly point.
“It seems like most of it is coming from the supply side. When the pandemic hit, obviously a lot of businesses weren’t able to produce as much as they were before,” Hollingsworth said.
There is also an issue of more dollars chasing fewer goods.
“Where Americans have historically spent 70 cents of every dollar on services, and only 30% on physical goods, when COVID came, we swapped and so suddenly we started buying more stuff,” Hollingsworth stated.
The war between Ukraine and Russia also disrupted the oil markets. Hollingsworth explained that it is also rumored to have the same effect on the food.
Another issue is China and its zero-tolerance COVID-19 policy.
“In China, whenever someone gets COVID they shut down the city,” Hollingsworth said.
This means they also shut down production.
While the Federal Reserve's major hike is meant to stabilize prices, it will be even more costly to borrow money for everything from car loans to mortgages, which according to the Lending Tree, has already climbed from 3% in January to 6% now.
“They’re trying to keep inflation in the 2% range. If we go back and look at the last 10-12 years in history, they’ve had a very difficult time trying to get inflation to 2%,” Hollingsworth said. “Now all of a sudden we’re running 8% to 9%.”
He said if the Federal Reserve can fix the demand side of things, then we should see a change.
“It can’t pump more oil. They can’t produce more wheat, they can’t put China’s factories back online, and so what they’re having to do is attack the demand side of the equation,” Hollingsworth explained. “If they can tap down the demand, then the supply-demand balance will come back in.”
He said that is the anticipation. It is also recommended that if you can, pay down any debt that you have.
Hollingsworth said these interest rates will affect those who have variable interest rate loans, and that those with credit card debt should not be affected.
Rates may only go up a little, but they should not move that much based on what the Federal Reserve is doing.
Also if you have an existing mortgage rate, that will not change. Those with new mortgages or car loans should expect to pay more.