The Federal Reserve recently confirmed plans to raise interest rates by 25 basis points at its upcoming mid-March meeting.
During a Congressional testimony in the first week of March, Fed Chair Jerome Powell addressed the rate hikes in response to rising inflation.
Powell said he believes it’s appropriate to raise the federal funds rate at its March meeting in a couple of weeks, and that he supports a 25-basis-point rate hike.
He also continues to support a series of rate hikes in 2022 to fight inflation, and some hikes may be above a quarter percentage point if inflation persists.
In anticipation of the hikes, experts are encouraging consumers to think ahead to how they will affect credit card bills, savings accounts, and mortgage rates.
While one 25-basis-point increase won’t make a big difference to a credit card’s annual percentage rate or savings account annual percentage yield, experts say, the series of hikes will make a noticeable difference.
However, as far as mortgage rates are concerned, experts say the funds rate won’t make much of a difference. Instead, other Fed actions such as ending the purchase of Treasury debt and mortgage-backed securities are impacting the rates more.
As a result, experts say consumers already have been witnessing the effects of these policy changes with current higher rates. Just a few weeks ago, rates reached over 4 percent for the first time since before the pandemic.
After the first Fed hike this month, experts say credit card holders should begin to see a difference in their APR by April or May.
While this difference should be marginal, if there are as many as seven rate hikes — which some experts are expecting — this may mean card holders could pay around $100 extra in interest over the life of the loan, depending on the starting rate.
Those who have their money in high-yield savings accounts will benefit, though.
Experts say these consumers can expect more returns than last year if they continue to add funds to these accounts.
However, experts say these higher yields would come from online savings accounts rather than regular banks.
Overall, the series of rate hikes and policy changes should slow consumer impulse purchasing, and gradually cool a scorching hot housing market, experts say.
This will leave room for inventory to balance and allow more people to once again find an affordable home.
However, market experts also want consumers to understand that mortgage rates are still historically favorable, and while home prices remain high, it may be a good time to refinance.Those who opt for a cash-out refinance or home equity line of credit can use the equity in their home to pay down high-interest credit card debt or make home improvements.