We are all feeling the pain of inflation right now whether at the gas pump, the grocery store or the hair salon. The federal government has some tools they can use to try to slow down inflation which they have recently started to put into place.
This includes the Fed’s decision last week to increase the Fed Funds Rate by .75%. This increase followed the .75% increase in June and the .25% increase in March. This means the Fed Funds Rate has increased by 1.75% since January.
What Does This Mean to Us?
When the Fed increased the federal funds rate, this affected the interest rates that are tied to the Prime Rate. This will be most notable if you carry a balance on your credit card. The interest rate would have increased in the last few months by 1.75%, which, on a $10,000 balance equates to $175 more per year, thereby increasing your monthly payment on those credit card balances. So, while the Fed is trying to help us by slowing down inflation, it is causing us even more pain in the short-term by raising interest rates on those short-term loans.
What Does This Mean for Mortgage Rates?
The Fed does not control mortgage rates. Instead, mortgage rates are long term rates that are more tied to expectations of future inflation. The Fed’s moves aimed at decreasing inflation is perceived positively by long-term lenders. This is because lenders will now view inflation as being less than before and therefore the rate they need to charge to get their desired rate of return will be lower.
What Can We Expect in the Coming Months?
The Fed has confirmed that ongoing rate hikes are appropriate, meaning that we can expect credit card rates to continue to increase, but possibly not quite as much.
The federal government will stop drawing from the Strategic Petroleum Reserve in September, which means we could see oil prices (gas prices) increase again. This will certainly not help inflation nor would it help us when we are trying to put gas in our cars, save money while paying higher interest rates on our credit cards.
What About My Home Loan?
There is some good news for homeowners in all of this. Many people were able to take advantage of the low, low rates we had on mortgages in 2020 and 2021, so you may have a really low interest rate on your 30 year fixed loan right now. You have also experienced a great level of appreciation during that same time-frame. This means if you have credit card debt or even a home improvement loan, it very well may be worth your while to contact us to review your situation to see if it would save you money to roll all of your debts into a new fixed-rate mortgage.