Chair Jerome Powell hopes that by making borrowing more expensive, the Fed will succeed in cooling demand for homes, cars and other goods and services and thereby slow inflation.
Credit card rates will likely rise. So will the cost of an auto loan. Savers may finally receive a yield high enough to top inflation.
Yet the risks are high. With inflation likely to stay elevated, the Fed may have to drive borrowing costs even higher than it now expects. Doing so could tip the U.S. economy into recession. For now, though, faster inflation and strong U.S. economic growth are sending the 10-year Treasury rate up sharply. As a consequence, mortgage rates have jumped 2 full percentage points just since the year began, to 5.1% on average for a 30-year fixed mortgage, according to Freddie Mac.In part, the jump in mortgage rates reflects expectations that the Fed will keep raising its key rate. But its forthcoming hikes aren't likely fully priced in yet.
Rates for buyers with lower credit ratings are most likely to rise as a result of the Fed’s hikes, said Alex Yurchenko, chief data officer for Black Book, which monitors U.S. vehicle prices. Because used vehicle prices, on average, are rising, monthly payments will rise too.WHAT ABOUT OTHER RATES? Savings, certificates of deposit and money market accounts don’t typically track the Fed’s changes. Instead, banks tend to capitalize on a higher-rate environment to try to increase their profits. They do so by imposing higher rates on borrowers, without necessarily offering any juicer rates to savers.
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