The Federal Reserve Just Increased US Interest Rates

The Federal Reserve raised interest rates by a quarter of a percentage point on Wednesday, which many analysts believe is an attempt to combat the effects of inflation.

Americans are currently experiencing the worst hyperinflation in 40 years; the Biden presidency is frantic to contain rising consumer prices and the dollar’s declining value.

Speculations and Predictions

Cabot Phillips of The Daily Wire joined the “Morning Wire” program on Monday to discuss why the Fed adopted this strategy and how it would affect the typical American household.

The move could affect everything from your house to your car insurance.

Phillips noted, “the Federal Reserve’s interest rate effectively defines the target borrowing cost.”

So whether you’re looking for a vehicle, a house, or property, banks model their interest rates significantly on the Federal Reserve’s rates.

Since March 2020, the Fed’s rate has remained between 0 and 0.25 percent.

This is implying you could essentially receive money for free. This is because the government feared an economic downturn during COVID and desired for people to continue spending and borrowing money throughout the epidemic. 

John Bickley, co-host of “Morning Wire,” pressed Phillips on how this might theoretically aid in the fight against inflation.

“The main premise is when interest rates rise, normal people become less willing to borrow money since the offers are no longer as favorable,” he stated.

“As a result, consumers will cease borrowing and spending money, leaving fewer active dollars in the economy, perhaps containing inflation.”

Economic Impacts

However, as Phillips emphasized, the rising rate would have a broader economic impact.

“Anyone who takes out higher debts will see this,” Phillips stated. For instance, if a mortgage grows by 2% on a half-million-dollar property, the house may cost an additional $200,000 in the long term.

For example, yearly credit card rates are guaranteed to increase this year, particularly for those with weaker credit scores.

Banks will be more selective about approving new lines of credit this year. If you’re in the market to purchase a property right now, mortgage interest rates are also increasing in the short term.

If you currently have a variable-rate mortgage, you can also anticipate paying more interest each month.

Phillips wants to caution people, however, that “making predictions of economics is typically a crapshoot.”

However, the idea is with less money passing hands, banks would increase their efforts to incentivize consumers to save their money, since banks would become more hungry for cash.”

“This suggests that CD rates are likely to increase in the coming months,” Phillips remarked. If you don’t pay off your credit card debt and thoroughly research the terms of any new vehicle loans, they’ll become more expensive.

“It’s certainly a lot for customers to consider these days,” Bickley said in response to the news.