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Effects of rising interest rates: If your home is suddenly 25 percent more expensive

Status: 06/18/2022 02:31

Record inflation has plagued Americans for months. Now the Fed has reacted violently. This is leading to massive turmoil, especially in the housing market.

Von Reinhard Baumgarten, ARD-Studio Washington

Jerome Powell hit the brakes hard on Wednesday. The head of the US Federal Reserve said it was essential to reduce inflation and announced that the key interest rate would be raised by a whopping 75 basis points.Let’s raise the key interest rate. This affects the financial situation. And this affects the economy “.

And it affects the lives of many people. Credit Card Examples: There are more than 530 million credit card accounts in the United States with a total of $ 860 billion 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 at AP News Agency, all financial institutions rely 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 on the rise in the United States for months. In May, the inflation rate was 8.6%. Fuel prices have doubled in one year. The reasons for this are different. Price hikes are hitting people and that is why they need to be raised, urges Joe Biden. He promises to have a plan to cut fuel and food costs President. It is unclear when his plan will go into 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 decrease. That’s why Carolina thinks Boldy discusses alternatives, as he tells a Reuters reporter as he refueled his SUV.

Maybe now is the time to ride a bike more or to ride a scooter whenever possible. We are considering switching to an electric car. Things like that are going through my head right now.

Sharp rise in mortgage interest rates

The consequences of rising interest rates 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.” There has been an unprecedented rise in mortgage interest rates since the beginning of the year.

We are seeing one of the fastest and most sustained hikes in mortgage rates in history. In anticipation of the Fed’s rate hike, they have risen by as much as 3% over the past ten months. For future homebuyers, this has the same effect as a 25% price increase.

Mortgage rates are currently at 5.78 percent. A year ago it was 2.93 percent. It is by no means clear whether building materials will indeed become cheaper with hopefully falling inflation. The rising financing costs for their own homes should make many builders and women think.

The Fed wants to continue to tighten interest rates

Because the Fed will continue to tighten the interest rate screw. According to Fed Chairman Powell, the target is a key interest rate of 3.5 to 4 percent over the next year. Financial expert McBride predicts that the more the Fed raises interest rates, the more severe the headwinds for the economy will be. “This increases the risk of a major slowdown or even a recession.”

With inflation at 40-year highs and interest rates at historic lows, a recession could be the price to pay to bring inflation back under control. But if inflation is reduced at the expense of a recession, then other calamities are lurking: job losses, unemployment, and lost income for millions of Americans.

Effects of interest rate hikes for people in the US

Reinhard Baumgarten, ARD Washington, 06/18/2022 6:38

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