The Federal Reserve is expected to raise interest rates again at its upcoming Federal Open Market Committee (FOMC) policy meeting. The market does anticipate the U.S. central bank to the pull trigger on a rate hike at least once more later this year.
This could spell bad news for the deeply indebted and homebuyers, warns WalletHub, a personal finance website, in its June 2018 Fed Rate Hike Probability & Analysis.
WalletHub researchers say that the Fed’s next rate hike could cost people with credit card debt an additional $1.6 billion this year. In total, the central bank’s six rate hikes since December 2015 have cost credit card holders $8.23 billion in interest.
Meanwhile, the Fed has cost the typical homebuyer approximately $42,000 since January 2015.
From WalletHub:
Interest rates on financial products, from credit cards to car loans and mortgages, are generally based on some sort of benchmark rate, which in turn is influenced by the Federal Reserve’s target interest rate in one way or another. So when the Fed’s target rises, the interest rates consumers pay, and the overall cost of borrowing do too. Unfortunately, the rates we earn on deposit accounts aren’t nearly as quick to react.
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If recent rate hikes are any indication, we won’t see much of a change following a June rate hike, as the mortgage markets have already accounted for the move. That’s because mortgages have fixed rates that are priced with a far longer timeframe in mind than other borrowing vehicles.
However, that is not to say that Fed rate hikes don’t make mortgages more expensive for new borrowers. WalletHub’s analysts estimate that this rate hike has increased the cost of new mortgages by 7 basis points.
Although the era of easy money and cheap debt isn’t over by a long shot, the window is slowly closing.
JRATT says
Nothing to see here. 1.6 billion divided by the millions of credit card accounts, equal a few pennies on each account per month.
Using the Census Bureau estimate of 249.5 million adults in the U.S.,6 that means there are about 189 million Americans adults with at least one credit card. Five percent of Americans have a charge card, which is a type of credit card that must be paid off in full every month.