With inflation continuing to cause problems for American consumers, financial analysts worry another Federal Reserve rate increase is on the horizon. No official news has been released regarding whether an increase will happen, but experts anticipate one in the near future. Its effects could prove to be damaging to the nation’s economy, however.
The Federal Reserve has already increased interest rates this year, and the effects have been felt. The cost of existing credit card debt has already gone up by just under $23 billion due to the Federal Reserve’s rate increases so far in 2022. If the Federal Reserve increases rates again before the year ends, existing credit card debt is expected to go up by another $3.2 billion. Additionally, WalletHub projects that consumers will end 2022 with approximately $110 billion more in credit card debt than they started the year 2022 with, which makes a national record.
WalletHub recently published a study regarding what the odds are of a December 2022 rate hike. So far, it is likely that the interest rate hike will be a 50-point one. They showed a 78.2 percent (78.2%) probability of a 50-point interest hike and a 21.8 percent (21.8%) probability of a 75-point interest hike.
The impact felt by the Federal rate increase depends heavily on the loan type. When the Federal Reserve increases their interest rate, the interest rates seen on different financial products, including credit cards, car loans, and mortgages.
Credit Cards
Most credit card interest rates are variable, which means they are tied to the Prime Rate. This means that credit card rates are expected to increase at the same amount as the Federal Reserve’s target rate. If the rate increase is a 50-point one, it will cost credit card users $3.2 billion more in 2023, on top of the interest rate increase so far. If the interest rate hikes that occurred in March, May, June, July, September, November, and December are taken into account, credit card holders will end up paying at least $22.9 billion more in credit card debt than they would have had the interest rate increases not occurred.
Mortgages
Financial experts do not anticipate mortgage rates to be affected by a December rate increase. Since mortgages have a fixed rate, they are priced at a much longer time frame than other loans or borrowing methods. While the rate increase may not affect current mortgages, it will influence future home loans. WalletHub’s study estimates that a possible rate increase in December will increase the cost of new mortgages by around 21 points, which comes to around $19,080 on an average home loan of $387,300.
Car Loans
WalletHub anticipates that the average APR on a 48-month mew car loan to increase by around 24 points in the event the Federal Reserve increase is a 50-point increase.
Deposit Accounts
WalletHub does not anticipate much change in most deposit accounts with the exception of online savings accounts. They estimate a 30-basis point increase in the average APY following the Federal Reserve’s November rate increase. Online savings account yields went up by an average of 169 basis points between January 1, 2022, and December 7, 2022, despite the 700 basis points in Federal Reserve increases during that same period. Oddly enough, while banks pass on higher interest rates to consumers on loans, the same cannot be said for money deposited in bank accounts.
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