The Federal Reserve on Wednesday raised interest rates by a quarter-point in a quest to control inflation and cool off the economy, a decision that will affect just about anyone who borrows or saves money.
Rates for home-equity lines of credit, credit cards, car loans, savings accounts and certificates of deposit are all influenced by the Federal Reserve’s moves on interest rates and are likely to head higher.
Borrowers who have home mortgages with fixed-rate loans won’t be affected because their rates are set regardless of what the Fed does.
But many other consumers are facing higher borrowing costs that are only now starting to increase.
Rates are already starting to rise at financial institutions, according to Dan Geller, an economist with San Francisco-based Analyticom, a behavioral economics and finance firm.
“Interest rates on all lending, mortgages, home-equity lines of credit, mortgages, credit cards, personal loans, the whole spectrum of lending, will have to go up,” Geller said.
With its decision on Wednesday, the Central Bank has officially embarked on a strategy that could create a tightrope between tamping down inflation yet avoiding slowing down business and consumer activity so much that the economy tumbles into a recession.
“We are well aware that our decisions affect consumers, families and businesses across the country,” Fed Chairman Jerome Powell said in comments to discuss the rate increase.
The Fed boss insisted that the nation’s economy can withstand the jolts from rising interest rates, which tend to curb economic activity.
“The economy is very strong, there is tremendous growth in the labor market and we expect momentum to continue,” Powell said.
The Federal Reserve decision-makers believe they have little choice but to raise rates, Powell insisted.
“Clearly it is time to raise interest rates,” Powell said.
Ominously, borrowers can expect more hikes in interest rates, the Fed chairman warned.
“We will take steps to ensure that inflation does not become entrenched while supporting a strong labor market,” Powell said.
Inflation has skyrocketed to a yearly pace of 5.2% in the Bay Area — the highest in two decades for the nine-county region — and 7.9% in the United States — a four-decade high for the nation.
The current brutal levels of consumer prices are a forbidding reminder of how far the Fed must travel to pursue its quest of choking off inflation.
“Our intention is to bring inflation back down to 2%,” Powell said.