The Federal Reserve just announced an interest rate hike, which could have a major impact on the average American’s finances going forward by affecting the interest rates for new car purchases, credit cards and home mortgages.
The rate hike comes at an important moment for the U.S. economy, with more and more Americans struggling to get out of debt caused by the decade-long recession. In fact, the Fed’s target funds rate has remained low since the housing bubble burst in late 2008. During that time, the interest rate stayed within a range of 0.0 percent to 0.25 percent, creating a buildup of sorts that has left many Americans unprepared for the potential consequences of a sudden rate hike.
While the Fed generally kept the interest rate low so as to stimulate economic growth and inflation while the U.S. was stuck in the midst of a recession, it appears that the time has come for things to change. The effects could be significant for many people who are still struggling to make ends meet.
The federal funds rate affects people’s ability to buy cars, use credit cards, borrow money from banks or other lenders, and cover their daily living expenses, according to many economists. Beyond that, Paula Campbell Roberts, executive director at major financial services corporation Morgan Stanley, recently said that the home mortgage market will likely be affected by the federal interest rate hike due to the subsequent shift in “the available supply of and demand for credit.”
The rate hike was announced during the most recent Federal Open Market Committee (FOMC) meeting. While the FOMC determined that the U.S. economy is strong enough to warrant a rise in the interest rate, the reality is that many Americans still haven’t fully recovered from the recession. Moreover, a lot of economists believe that the U.S. remains in a down economy, raising concerns about the Fed Reserve’s recent decision. For example, while unemployment numbers are generally declining across the board, the U.S. labor force participation rate remains at its lowest figure in almost 40 years.
The end result of the rate hike could be that the cost of borrowing will go up for Americans, which could have a devastating effect on anyone who is already struggling under a mountain of debt or finding it difficult to pay off home or auto loans.
To learn more about the impact of the interest rate hike, read the AOL.com article entitled, “Here’s How the Fed’s Rate Decision Affects Mortgages, Auto Loans, and Credit Cards.” https://www.aol.com/article/2015/12/14/heres-how-the-feds-rate-decision-affects-mortgages-auto-loans/21283240/
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