September 21, 2022
The Federal Reserve just increased interest rates by another 0.75%. And it’s not going to end here. I’m going to tell you what that means for your bank account in a second.
Yes – that’s another so-called “jumbo” sized rate increase on top of the 0.75% increases in both June and July plus 0.5% in May and a 0.25% increase in March.
I know that seems like a lot, but in reality, it’s returning interest rates to a more normal level. We’ve become used to extremely low or near zero interest rates for several years (from 2009 to 2015 and then again during the pandemic). But the danger isn’t in raising interest rates to this level…it’s raising interest rates this much this quickly. That leaves a lot of room for error and could push the economy into a recession. But the Fed Chair says he doesn’t have a choice – he has to keep raising interest rates aggressively because inflation doesn’t seem to be coming down. The latest report says august inflation was 8.3%. The federal reserve wants it to be 2-%. As I’ve reported on my page repeatedly, raising interest rates is the major tool the federal reserve has to get inflation under control and for those of you in the back – the President and Congress has no say in what the Federal Reserve does. Though the Federal Reserve operates within the government it’s completely independent and does not have to run these decisions by anyone.
So what does this mean for you?
Inflation happens because there’s too much money circulating in the economy. Raising interest rates makes the cost of borrowing money more expensive so consumers and businesses start to pull their money out of circulation and eventually prices come back down.
So, if you have a credit card balance – these increased rates will increase the percent you’re charged on that balance. If you are in the market to buy a car and you have to borrow money to make that purchase – those rates will increase. If you have a variable rate mortgage or home equity line of credit that will be impacted by this increase. If you have to take out a personal loan, that will likely increase too.
The Federal Reserve will meet one more time this year and the chairman has indicated the rate will go up again and in turn they are expecting the unemployment rate will likely go up.
Watch the Federal Reserve Chairman’s announcement here.