Federal Reserve Again Raises Rates 75bps as Expected, Hints at Possibly Smaller Hikes

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    JPMorgan Chase $JPM will increase its prime rate 75 basis points to 6.25 percent, effective Thursday, September 22, 2022 following Fed 75 hike of 50bps


    Bank of America sees Fed hiking to 4.75-5.00%

    “We now expect hikes of 75bp in November, 50bp in December, followed by two 25bp rate hikes by March of next year… Our new terminal target range is 4.75-5.00%, up from 4.00-4.25% previously” $BAC


    Rising rates will increase your credit card bills

    The average annual percentage rate on a credit card increased from around 16.17% in early March to more than 18% in September, because of rate increases, according to Bankrate. Since the average household carries a $8,942 balance, according to WalletHub, that works out to roughly an extra $14 in interest each month.

    These numbers may appear small, said Nina O’Neal, partner and investment adviser with AIM Advisors, but the relatively quick rate of increases can creep up.

    Higher mortgage rates make homes less affordable

    The change in the cost of borrowing to buy a house has been more pronounced in what has already been a pricey housing market. Before the Fed’s move, the average fixed rate on a 30-year mortgage recently rose to 6.02%, from 4.16% the week of March 17, and additional rate increases would likely push mortgage rates even higher.

    Rising rates can translate to hundreds of dollars more in a monthly mortgage payment. The median home price reached $403,800 in July, according to data from the National Association of Realtors. Someone putting a 20% down payment on such a home and taking out a 30-year mortgage with a 6% rate will now pay around $2,400 a month. If they made the same purchase six months ago, their monthly payments would be nearly $250 less.

    A new car comes with additional sticker shock

    Americans are also paying more than ever before to finance new car loans. Those looking to buy a new car now should closely examine the interest rate offered. Individual dealerships and lenders can charge different amounts for a new loan, but the average APR on a five-year loan steadily increased over the past six months from 3.98% to 5.07%, according to Bankrate. As the average price of a new car rises closer to $50,000, borrowers every month are paying about $10 more in interest.

    Saving accounts generate slightly more interest

    In years past, one benefit of higher rates has been better interest on savings accounts. But the rates on savings tend to rise much more slowly than those for loans, since the banks don’t have much competition for deposits.

    “Savers kind of get a raw deal,” Prof. Fohlin said. “That high-yield savings is not what it used to be, so you don’t get as much interest, and you’re certainly not keeping up with inflation.”

    Still, an increase in rates can mean a slightly better yield on your savings. Six months ago, holding $1,000 in an account with Goldman Sachs’s Marcus, for example, meant you would net 0.5% in interest. Now, the same account is offering 1.9% in annual percentage yield, meaning savers gain an extra $14 in interest over a year, up from the $5 in interest gained at the previous rate.

    Budget trade offs to consider

    The frequency and size of the Fed increases make it tougher for consumers to make decisions about borrowing and saving, said Yiming Ma, assistant professor of finance at Columbia University. “It’s even more important now than before to be aware of your interest rate when you’re putting money in the bank as well as when you’re borrowing,” she said.

    The big picture could mean streamlining your financial plan or reimagining money goals in light of the combined effect of these rate increases, Prof. Fohlin said. For those looking to take on a new mortgage, for example, that could mean opting for a smaller house, delaying the house hunt or considering other mortgage products that offer lower interest rates.


    Today’s Fed facepalm

    Chicago Fed (non-voter) #Evans acknowledged that the Fed misjudged inflation and could have acted sooner.
    Minneapolis Fed (non-voter) #Kashkari said that rate hikes need to continue until underlying inflation starts declining.


    There was also growing speculation among market participants that today’s weak economic data and concerns about financial instability will compel the Fed to take a softer angle with its rate-hike approach. That narrative, however, was not supported by the fed funds futures market. There was little change, versus Friday, in the expectation that the terminal fed funds rate will be 4.25-4.50%.

    That move came in response to the UK abandoning its plan to cut taxes for higher earners and to weaker-than-expected ISM Manufacturing and Construction Spending data out of the U.S. The 2-yr note yield, which reached 4.22% overnight, fell nine basis points on the day to 4.11%. The 10-yr note yield, which reached 3.80% overnight, fell 14 basis points to 3.65%.


    Chicago Fed Pres. Charlie Evans

    Inflation is very high right now, that’s the issue that the top of mind for Fed officials
    there is good amount of strength in the US economy
    I suspect that it unemployment will creep up
    labor market is still good, and will be more challenging with higher interest rates
    we will bring inflation down through making policy restrictive
    we have to look at momentum of core inflation and that’s what has us most nervous
    need a more restrictive seeing of monetary policy because inflation is high
    we have further the going rate hikes
    we are heading to 4.5% – 4.75% by springtime (NOTE the dot plot for 2023 was looking for 4.6% which is within that range)
    I believe balance sheet reduction will be completed within 3 years
    Fed will discuss 50 or 75 basis points at the next meeting
    Policymakers are looking for 125 basis point rate hikes over the next 2 meetings

    Helmholtz Watson

    The Federal Reserve again raised rates by 75 bp to a target range of 3.75% to 4.0% at their November meeting. The market was pricing in 98.0% for 75 b
    [See the full post at: Federal Reserve Again Raises Rates 75bps as Expected, Hints at Possibly Smaller Hikes]

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