The Federal Reserve monthly meeting is happening this week. This year, it has become expected that every time they meet, their board will raise their benchmark interest rate again and again. The next big rate hike is expected to come this Wednesday afternoon.
Even though the Fed has no direct control over consumer interest rates, they do control the rate at which their member banks borrow money to make it available to consumers via banking products. This is one of the Federal Reserve’s key tools for guiding U.S. monetary policy.
Subsequently, interest rates on consumer lending products such as credit cards, autos, mortgages and other borrowing vehicles will rise. Americans should take heed and prepare their finances for even higher interest rates this year.
The Federal Reserve has already increased its benchmark short-term federal funds rate by 2.25% this year, 4 increases ranging from 0.25% to 0.75% each. These increases are unprecedented on how high and fast they are occurring.
The Fed’s goal with these increases is to fight consumer inflation which slowed down in July, but continues to set record highs.
The goal of the Fed rate hikes is to make consumers think twice before spending more money, slowing down the economy and subsequently inflation.
FIRST, if you have any credit card debt balance that you’re pushing over from month to month, it’s time to pay it all off. A good way to get this taken care of is getting a Home Equity Line of Credit, a personal loan, or a cash-out refinance of your current mortgage home loan at a fixed rate. Debt consolidation is a good plan during this increasing rate environment.
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SECOND, if you’re currently in the market to buy a home, it’s time to lock your rate. Call your Mortgage officer and let them know you also want to explore the idea of buying down your rate with points. It might be a good long term investment.
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THIRD, curb your enthusiasm on new major purchases. Unless you have a recession proof job and income, it is wise to look into all your current expenses and start cutting back. This is EXACTLY what the Fed is hoping to achieve, and the longer the general population takes to cut their household expenses, the more painful this process will be. Any upcoming purchases your family may have, you want to double check and apply the NEED v WANT test. Do we truly need this expense at this time? or can it wait till the economy is more stable?