Tag: Federal Reserve System

The Federal Reserve is about to hike interest rates one last time this year. Here’s how it may affect you

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The Federal Reserve is expected on Wednesday to raise interest rates for the seventh time this year to combat stubborn inflation.

The U.S. central bank will likely approve a 0.5 percentage point hike, a more typical pace compared with the super-size 75 basis point moves at each of the last four meetings.

This would push benchmark borrowing rates to a target range of 4.25% to 4.5%. Although that’s not the rate consumers pay, the Fed’s moves still affect the rates consumers see every day.

Why a smaller rate hike may be ‘pretty good news’

By raising rates, the Fed makes it costlier to take out a loan, causing people to borrow and spend less, effectively pumping the brakes on the economy and slowing down the pace of price increases.

“For most people this is pretty good news because prices are starting to stabilize,” said Laura Veldkamp, a professor of finance and economics at Columbia University Business School. “That’s going to bring a lot of reassurance to households.”

However, “there are some households that will be hurt by this,” she added — particularly those with variable rate debt.

For example, most credit cards come with a variable rate, which means there’s a direct connection to the Fed’s benchmark rate.

But it doesn’t stop there.

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What the Fed’s rate hike means for you

Another increase in the prime rate will send financing costs even higher for many other forms of consumer debt. On the flip side, higher interest rates also mean savers will earn more money on their deposits.

“Credit card rates are at a record high and still increasing,” said Greg McBride, chief financial analyst at Bankrate.com. “Auto loan rates are at an 11-year high, home equity lines of credit are at a 15-year high, and online savings account and CD [certificate of deposit] yields haven’t been this high since 2008.”

Here’s a breakdown of how increases in the benchmark interest rate have impacted everything from mortgages and credit cards to car loans, student debt and savings:

1. Mortgages

Although 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

“Though they are falling, mortgage rates are still at a more than 10-year high,” said Jacob Channel, senior economic analyst at LendingTree.

The average rate for a 30-year, fixed-rate mortgage currently sits at 6.33%, down from mid-November, when it peaked at 7.08%.

For would-be buyers, a 30-year, fixed-rate mortgage on a $300,000 loan would cost about $1,283 a month at last year’s 3.11% rate. If you paid today’s 6.33% instead, that would cost an extra $580 a month or $6,960 more a year and another $208,800 over the lifetime of the loan, Channel calculated.

Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate. As the federal funds rate rises, the prime rate does, as well, and these rates follow suit. Most ARMs adjust once a year, but a HELOC adjusts right away. Already, the average rate for a HELOC is up to 7.3% from 4.24% earlier in the year.

2. Credit cards

Credit card annual percentage rates are now more than 19%, on average, up from 16.3% at the beginning of the year, according to Bankrate.

“Even those with the best credit card can expect to be offered APRs of 18% and higher,” said Matt Schulz, LendingTree’s chief credit analyst.

But “rates aren’t just going up on new cards,” he added. “The rate you’re paying on your current credit card is likely going up, too.”

Further, households are increasingly leaning on credit cards to afford basic necessities since incomes have not kept pace with inflation, making it even harder for those carrying a balance from month to month.

If the Fed announces a 50 basis point hike as expected, the cost of existing credit card debt will increase by an additional $3.2 billion in the next year alone, according to a new analysis by WalletHub.

3. Auto loans

Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans. So if you are planning to buy a car, you’ll shell out more in the months ahead.

The average interest rate on a five-year new car loan is currently 6.05%, up from 3.86% at the beginning of the year, although consumers with higher credit scores may be able to secure better loan terms.

Paying an annual percentage rate of 6.05% instead of 3.86% could cost consumers roughly $5,731 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

Still, it’s not the interest rate but the sticker price of the vehicle that’s primarily causing an affordability crunch, McBride said.

4. Student loans

The interest rate on federal student loans taken out for the 2022-23 academic year already rose to 4.99%, up from 3.73% last year and 2.75% in 2020-21. It won’t budge until next summer: Congress sets the rate for federal student loans each May for the upcoming academic year based on the 10-year Treasury rate. That new rate goes into effect in July.

Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that, as the Fed raises rates, those borrowers are also paying more in interest. How much more, however, will vary with the benchmark.

Currently, average private student loan fixed rates can range from 2.99% to 14.96%, and 2.99% to 14.86% for variable rates, according to Bankrate. As with auto loans, they vary widely based on your credit score.

5. Savings accounts

On the upside, the interest rates on some savings accounts are also higher after consecutive rate hikes.

While the Fed has no direct influence on deposit rates, the rates tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.24%, on average.

Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 4%, much higher than the average rate from a traditional, brick-and-mortar bank, according to Bankrate.

“Interest rates can vary substantially, especially in today’s interest rate environment in which the Fed has raised its benchmark rate to its highest level in more than a decade,” said Ken Tumin, founder of DepositAccounts.com.

“Banks make money off of customers who don’t monitor their interest rates,” Tumin said.

With balances of $1,000 to $25,000, the difference between the lowest and highest annual percentage yield can result in an additional $51 to $965 in a year and $646 to $11,685 in 10 years, according to an analysis by DepositAccounts.

Still, any money earning less than the rate of inflation loses purchasing power over time.

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December 12, 2022
Asian markets extend Wall St losses; China COVID cases rise

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BANGKOK — Shares slipped in Asia on Monday after last week’s decline on Wall Street, while signs of a surge in coronavirus infections in China suggested progress may be bumpy as it rolls back its “zero-COVID” pandemic restrictions.

Attention was turning to an update on U.S. consumer prices and the Federal Reserve’s last meeting of the year.

The last big piece of data on inflation before the Fed’s next decision is due Tuesday, when economists expect the consumer price index to show inflation slowed to 7.3% last month from 7.7% in October.

Meetings of major central banks including the Fed mean “there is potential for a whole load of volatility in markets; especially given the palpable tensions between inflation risks and fears of policy-induced recession,” analysts at Mizuho Bank said in a commentary.

A survey of Japanese manufacturers showed a sharp deterioration in the outlook, with recession a growing possibility in the U.S. and other major markets. The business survey index fell to minus 3.6% in October-December from 1.7% in the previous quarter as manufacturers grappled with high prices for energy and other raw materials.

Hong Kong’s Hang Seng sank 2.1% to 19,484.88 and the Shanghai Composite index shed 0.7% to 3,186.05.

Tokyo’s Nikkei 225 index gave up 0.2% to 27,835.63 while the Kospi in Seoul lost 0.6% to 2,375.27.

Australia’s S&P/ASX 200 declined 0.4% to 7,181.40.

China was setting up more intensive care facilities and trying to strengthen hospitals as it rolls back anti-virus controls that confined millions of people to their homes, crushed economic growth and set off protests.

The precautions come as the number of cases appeared to be rising, though a sharp reduction in the number of tests makes measuring any changes uncertain.

President Xi Jinping’s government is officially committed to stopping virus transmission, the last major country to try. But the latest moves suggest the ruling Communist Party will tolerate more cases without quarantines or shutting down travel or businesses as it winds down its “zero-COVID” strategy.

A choppy day of trading on Wall Street ended with stocks broadly lower Friday.

The S&P 500 and Nasdaq composite each fell 0.7%, while the Dow Jones Industrial Average dropped 0.9%. Smaller company stocks fell even more, pulling the Russell 2000 index 1.2% lower. The indexes marked their first losing week in the last three.

The S&P 500 finished 3.4% lower for the week and is now down 17.5% this year.

The U.S. government reported that prices paid at the wholesale level were 7.4% higher in November than a year earlier. That’s a slowdown from October’s wholesale inflation rate of 8.1%, but it was still slightly worse than economists expected.

The Fed has been battling inflation by aggressively raising interest rates to raise the cost of borrowing and slow economic activity. The central bank has already hiked its key overnight rate to a range of 3.75% to 4%, up from basically zero as recently as March.

It generally is expected to raise rates by another half percentage point on Wednesday as it wraps up a two-day meeting.

Stocks have recovered some of their losses recently, as inflation has slowed since hitting a peak in the summer. But it remains too high, raising the risk the Federal Reserve will have to keep hiking interest rates sharply to get it fully under control.

In other trading Monday, U.S. benchmark crude oil gained 54 cents to $71.56 per barrel in electronic trading on the New York Mercantile Exchange. It lost 44 cents to $71.02 on Friday.

Brent crude, the pricing basis for international trading, added 40 cents to $76.50 per barrel.

The U.S. dollar rose to 137.03 Japanese yen from 136.60 yen. The euro slipped to $1.0516 from $1.0537.

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December 11, 2022
Asian markets extend Wall St losses; China COVID cases rise

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BANGKOK — Shares slipped in Asia on Monday after last week’s decline on Wall Street, while signs of a surge in coronavirus infections in China suggested progress may be bumpy as it rolls back its “zero-COVID” pandemic restrictions.

Attention was turning to an update on U.S. consumer prices and the Federal Reserve’s last meeting of the year.

The last big piece of data on inflation before the Fed’s next decision is due Tuesday, when economists expect the consumer price index to show inflation slowed to 7.3% last month from 7.7% in October.

Meetings of major central banks including the Fed mean “there is potential for a whole load of volatility in markets; especially given the palpable tensions between inflation risks and fears of policy-induced recession,” analysts at Mizuho Bank said in a commentary.

A survey of Japanese manufacturers showed a sharp deterioration in the outlook, with recession a growing possibility in the U.S. and other major markets. The business survey index fell to minus 3.6% in October-December from 1.7% in the previous quarter as manufacturers grappled with high prices for energy and other raw materials.

Hong Kong’s Hang Seng sank 2.1% to 19,484.88 and the Shanghai Composite index shed 0.7% to 3,186.05.

Tokyo’s Nikkei 225 index gave up 0.2% to 27,835.63 while the Kospi in Seoul lost 0.6% to 2,375.27.

Australia’s S&P/ASX 200 declined 0.4% to 7,181.40.

China was setting up more intensive care facilities and trying to strengthen hospitals as it rolls back anti-virus controls that confined millions of people to their homes, crushed economic growth and set off protests.

The precautions come as the number of cases appeared to be rising, though a sharp reduction in the number of tests makes measuring any changes uncertain.

President Xi Jinping’s government is officially committed to stopping virus transmission, the last major country to try. But the latest moves suggest the ruling Communist Party will tolerate more cases without quarantines or shutting down travel or businesses as it winds down its “zero-COVID” strategy.

A choppy day of trading on Wall Street ended with stocks broadly lower Friday.

The S&P 500 and Nasdaq composite each fell 0.7%, while the Dow Jones Industrial Average dropped 0.9%. Smaller company stocks fell even more, pulling the Russell 2000 index 1.2% lower. The indexes marked their first losing week in the last three.

The S&P 500 finished 3.4% lower for the week and is now down 17.5% this year.

The U.S. government reported that prices paid at the wholesale level were 7.4% higher in November than a year earlier. That’s a slowdown from October’s wholesale inflation rate of 8.1%, but it was still slightly worse than economists expected.

The Fed has been battling inflation by aggressively raising interest rates to raise the cost of borrowing and slow economic activity. The central bank has already hiked its key overnight rate to a range of 3.75% to 4%, up from basically zero as recently as March.

It generally is expected to raise rates by another half percentage point on Wednesday as it wraps up a two-day meeting.

Stocks have recovered some of their losses recently, as inflation has slowed since hitting a peak in the summer. But it remains too high, raising the risk the Federal Reserve will have to keep hiking interest rates sharply to get it fully under control.

In other trading Monday, U.S. benchmark crude oil gained 54 cents to $71.56 per barrel in electronic trading on the New York Mercantile Exchange. It lost 44 cents to $71.02 on Friday.

Brent crude, the pricing basis for international trading, added 40 cents to $76.50 per barrel.

The U.S. dollar rose to 137.03 Japanese yen from 136.60 yen. The euro slipped to $1.0516 from $1.0537.

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December 11, 2022
Asian shares slip after tech stock slump on Wall St

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BANGKOK — Shares were mostly lower in Asia on Thursday after Wall Street sagged under weakness in tech stocks.

U.S. futures turned higher and oil prices rebounded more than $1 a barrel.

Japan revised upward its GDP data to show the economy contracted less than earlier reported in July-September, in a sign the country weathered its latest big COVID wave with less damage than had been thought.

The Cabinet Office reported Thursday that the economy shrank at a 0.8% annual rate in July-September. That was better than minus 1.2% annual growth reported earlier.

In quarterly terms, the world’s third-largest economy contracted 0.2% instead of 0.3%.

Shares rose in Hong Kong as investors assessed the potential impact of a rollback of many pandemic restrictions on the Chinese mainland.

On Wednesday, rules on isolating people with COVID-19 were eased and virus test requirements were dropped for some public places in a dramatic change to a strategy that had confined millions of people to their homes and sparked protests and demands for President Xi Jinping to resign.

Experts warned, however, that the “zero-COVID” restrictions can’t be lifted completely until at least mid-2023 because millions of elderly people still must be vaccinated and the health care system strengthened.

“Specifically, there are three reasons to be restrained, if not circumspect, on China cheer. First, the simple point that the unwind of entrenched zero-COVID policies will take time and perhaps be a bumpy process rather than a linear path to instant gratification,” Mizuho Bank said in a commentary.

Hong Kong’s Hang Seng gained 3.5% to 19,475.45, while the Shanghai Composite lost 0.1% to 3,197.35.

Australia’s S&P/ASX 200 sank 0.8% to 7,175.50 and South Korea’s Kospi dropped 0.5% to 2,371.08. Shares also fell in Bangkok, Mumbai and Taiwan.

Wall Street ended a wobbly day of trading with more losses Wednesday, with the S&P 500 down 0.2% in its fifth straight loss. It closed at 3,933.92.

Technology and communication services stocks were the biggest weights on the benchmark index. Apple fell 1.4% and Google parent Alphabet dropped 2.1%.

The Nasdaq composite, which is heavily weighted with tech stocks, fell 0.5% to 10,958.55 and the Dow Jones Industrial Average managed a 1.58 point gain, essentially flat, at 33,597.92.

The Russell 2000 index fell 0.3% to 1,806.90.

Treasury yields fell significantly. The yield on the 10-year Treasury, which influences mortgage rates, slid to 3.42% from 3.53% late Tuesday. The two-year Treasury yield, which tends to track market expectations of future action by the Federal Reserve, fell to 4.27% from 4.36%.

Investors have been dealing with a relative lack of news ahead of updates on inflation and consumer sentiment later this week, and the Federal Reserve’s meeting next week. Inflation, the Fed’s aggressive interest rate increases and recession worries remain the big concerns for Wall Street.

Investors are watching for data that may yield more insights into inflation’s path ahead and how the Fed will continue fighting high prices.

The U.S. will release data on weekly unemployment claims on Thursday. The jobs market has been a strong area of the otherwise slowing economy and that has made it more difficult for the Fed to tame inflation.

The government will release a report on wholesale prices Friday that will provide more details on how inflation is affecting businesses. The University of Michigan will release a December survey on consumer sentiment on Friday.

Inflation has been easing and economists expect the upcoming data on wholesale and consumer prices to reflect that trend.

The central bank is expected to raise interest rates by a half-percentage point at its meeting next week. It has raised its benchmark rate six times since March, driving it to a range of 3.75% to 4%, the highest in 15 years. Wall Street expects the benchmark rate to reach a peak range of 5% to 5.25% by the middle of 2023.

A growing number of analysts expect the U.S. economy to slip into a recession in 2023, but are unsure of its potential severity and duration.

In other trading, U.S. crude oil prices rose $1.18 to $73.19 per barrel in electronic trading on the New York Mercantile Exchange. On Wednesday, it fell 3%, settling at $72.01 per gallon, the lowest price this year.

Brent crude oil gained $1.12 to $78.29 per barrel.

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December 7, 2022
Asian shares slip after tech stock slump on Wall St

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BANGKOK (AP) — Shares are mostly lower in Asia after Wall Street sagged under weakness in tech stocks.

U.S. futures edged lower while oil prices rebounded.

Japan revised upward its GDP data to show the economy contracted less than earlier reported in July-September, in a sign the country weathered its latest big COVID wave with less damage than had been thought.

The Cabinet Office reported Thursday that the economy shrank at a 0.8% annual rate in July-September. That was better than minus 1.2% annual growth reported earlier.

In quarterly terms, the world’s third-largest economy contracted 0.2% instead of 0.3%.

Shares rose in Hong Kong as investors studied the potential impact of a rollback of many pandemic restrictions on the Chinese mainland.

On Wednesday, rules on isolating people with COVID-19 were eased and virus test requirements were dropped for some public places in a dramatic change to a strategy that had confined millions of people to their homes and sparked protests and demands for President Xi Jinping to resign.

Experts warned, however, that the “zero-COVID” restrictions can’t be lifted completely until at least mid-2023 because millions of elderly people still must be vaccinated and the health care system strengthened.

“Specifically, there are three reasons to be restrained, if not circumspect, on China cheer. First, the simple point that the unwind of entrenched zero-COVID policies will take time and perhaps be a bumpy process rather than a linear path to instant gratification,” Mizuho Bank said in a commentary.

Hong Kong’s Hang Seng gained 2.4% to 19,267.52, while the Shanghai Composite lost 0.2% to 3,193.14.

Australia’s S&P/ASX 200 sank 0.6% to 7,183.00 and South Korea’s Kospi dropped 1% to 2,360.24. Shares also fell in Bangkok, Mumbai and Taiwan.

Wall Street ended a wobbly day of trading with more losses Wednesday, with the S&P 500 down 0.2% in its fifth straight loss. It closed at 3,933.92.

Technology and communication services stocks were the biggest weights on the benchmark index. Apple fell 1.4% and Google parent Alphabet dropped 2.1%.

The Nasdaq composite, which is heavily weighted with tech stocks, fell 0.5% to 10,958.55 and the Dow Jones Industrial Average managed a 1.58 point gain, essentially flat, at 33,597.92.

The Russell 2000 index fell 0.3% to 1,806.90.

Treasury yields fell significantly. The yield on the 10-year Treasury, which influences mortgage rates, slid to 3.42% from 3.53% late Tuesday. The two-year Treasury yield, which tends to track market expectations of future action by the Federal Reserve, fell to 4.27% from 4.36%.

Investors have been dealing with a relative lack of news ahead of updates on inflation and consumer sentiment later this week, and the Federal Reserve’s meeting next week. Inflation, the Fed’s aggressive interest rate increases and recession worries remain the big concerns for Wall Street.

U.S. crude oil prices fell 3%, settling at $72.01 per gallon, the lowest price this year. Early Thursday, it was up 67 cents at $72.68 per barrel in electronic trading on the New York Mercantile Exchange.

Brent crude oil gained 64 cents to $77.81 per barrel.

Investors are watching for data that may yield more insights into inflation’s path ahead and how the Fed will continue fighting high prices.

The U.S. will release data on weekly unemployment claims on Thursday. The jobs market has been a strong area of the otherwise slowing economy and that has made it more difficult for the Fed to tame inflation.

The government will release a report on wholesale prices Friday that will provide more details on how inflation is affecting businesses. The University of Michigan will release a December survey on consumer sentiment on Friday.

Inflation has been easing and economists expect the upcoming data on wholesale and consumer prices to reflect that trend.

The central bank is expected to raise interest rates by a half-percentage point at its meeting next week. It has raised its benchmark rate six times since March, driving it to a range of 3.75% to 4%, the highest in 15 years. Wall Street expects the benchmark rate to reach a peak range of 5% to 5.25% by the middle of 2023.

A growing number of analysts expect the U.S. economy to slip into a recession in 2023, but are unsure of its potential severity and duration.

___

AP Business writers Damian J. Troise and Alex Veiga contributed.

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December 7, 2022
Fed at last meeting saw few signs that inflation was easing

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WASHINGTON — Federal Reserve officials at their last meeting saw “very few signs that inflation pressures were abating” before raising their benchmark interest rate by a substantial three-quarters of a point for a fourth straight time.

Rising wages, the result of a strong job market, combined with weak productivity growth, were “inconsistent” with the Fed’s ability to meet its 2% target for annual inflation, the policymakers concluded, according to the minutes of their Nov. 1-2 meeting released Wednesday.

But they also agreed that smaller rate hikes “would likely soon be appropriate.″ The Fed is widely expected to slow its rate hikes to a half-point increase when it next meets in mid-December.

At their meeting early this month, the Fed officials also expressed uncertainty about how long it might take for their rate hikes to slow the economy enough to tame inflation. Chair Jerome Powell stressed at a news conference after this month’s meeting that that the Fed isn’t even close to declaring victory in its fight to curb high inflation.

Still, some of the policymakers expressed hope that falling commodity prices and the unsnarling of supply chain bottlenecks “should contribute to lower inflation in the medium term.’’ Earlier this month, the government reported that price increases moderated in October in a sign that the inflation pressures might be starting to ease. Consumer inflation reached 7.7% in October from a year earlier and 0.4% from September. The year-over-year increase was the smallest rise since January.

Wednesday’s minutes revealed that Fed officials expected ongoing rate increases to be “essential’’ to keep Americans from expecting inflation to continue indefinitely. When people expect further high inflation, they act in ways that can make those expectations self-fulfilling — by, for example, demanding higher wages and spending vigorously before prices can further accelerate.

The Fed officials noted that employers were resisting layoffs even as the economy slowed, apparently “keen” to hold onto workers after a year and a half of severe labor shortages. The U.S. unemployment rate is 3.7%, just above a half-century low.

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November 23, 2022
Bill Ackman doubts Fed can tame prices: ‘We’ll have to ultimately accept a higher level of inflation’

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November 21, 2022
Fed Vice Chair Brainard is ‘reassured’ by inflation report

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WASHINGTON — Federal Reserve Vice Chair Lael Brainard said Monday that she was encouraged by last week’s U.S. inflation report, which pointed to slower price increases, and said the Fed would likely soon reduce the size of its interest rate hikes.

“The inflation data was reassuring, preliminarily,” Brainard said. “It will probably be appropriate, soon, to move to a slower pace of rate increases.”

Brainard’s comments, during a discussion at Bloomberg, were more positive toward the inflation report than were those of several of her Fed colleagues last week. Some central bank officials have sought to temper the stock market‘s ebullient response to the better-than-expected inflation report, which suggested that the rampant price spikes of the past 18 months were moderating.

The Fed is considering raising rates in smaller increments after having increased its key short-term rate, which affects many consumer and business loans, by a substantial three-quarters of a point at four straight policy meetings. Yet the central bank doesn’t necessarily want the stock market to jump in response. A major sustained stock rally tends to cause consumers and businesses to spend more and can undercut the Fed’s efforts to cool economic growth and inflation.

On Sunday, Christopher Waller, a member of the Fed’s influential Board of Governors, suggested that “everybody should just take a deep breath” after last week’s inflation report, because it “was just one data point.”

“We’re going to need to see a continued run of this kind of behavior and inflation slowly starting to come down,” Waller said, “before we really start thinking about taking our foot off the brakes.”

On Monday, Brainard pointed approvingly to a decline in goods inflation: The costs of used cars, clothes and furniture all fell from September to October. Those price declines reflected the unsnarling of previously clogged global supply chains, which had caused inflation spikes last year and earlier this year.

The central bank can now take a more deliberative approach, Brainard said, after having raised its key short-term rate to a range of 3.75% to 4%, a level she said will restrict economic growth over time.

The Fed’s vice chair noted that it can take time for rate increases to affect the overall U.S. economy. In the past, Brainard has made that point in explaining that raising rates in smaller increments would give the Fed time to judge how its earlier rate increases were working.

As the Fed’s policies start to restrict growth, Brainard said, the policymakers will start considering the risk that they could go too far and raise rates higher than needed, thereby causing a recession.

“As we get into restrictive territory, or further into restrictive territory, risks become more two sided.” she said. That is, the dual risks would be that inflation could stay too high or that the Fed would slow the economy too sharply.

Thursday’s data showed that consumer prices rose 7.7% in October compared with a year ago — still a painfully high level, but down from a peak of 9.1% in June. And a separate gauge that measures “core prices,” which exclude volatile food and energy, rose just 0.3% from September to October, half the pace of the previous two months.

In her remarks Monday, Brainard underscored that the Fed would continue to raise rates in the coming months.

“What’s really important to emphasize,” Brainard said Monday, “is we’ve done a lot, but we have additional work to do both on raising rates and sustaining restraint to bring inflation down to 2% over time.” That was a reference to the Fed’s annual 2% inflation target.

Speaking at a news conference earlier this month, Chair Jerome Powell signaled that the Fed may scale back its rate hikes to a half-point as soon as its meeting in mid-December. Historically speaking, that would still amount to a sizable increase. In the past, the Fed has most commonly raised or cut rates by just a quarter-point.

The stock market soared after Thursday’s inflation report on hopes that cooling inflation would allow the Federal Reserve to slow its interest rate increases. T he Dow Jones surged 1,200 points, its best day in two years. Stocks added further gains on Friday.

In the wake of the market’s celebratory response to the inflation data, several Fed policymakers sought last week to cool the enthusiasm.

“One month of data does not a victory make, and I think it’s really important to be thoughtful, that this is just one piece of positive information,” said Mary Daly, president of the San Francisco Federal Reserve.

Lorie Logan, president of the Dallas Fed, added Thursday that the inflation figures “were a welcome relief” but made clear that further Fed rate hikes are coming, though possibly at a slower pace.

In her remarks Monday, Brainard pointed to other signs that inflation pressures are cooling. She noted that two gauges of worker pay have shown that wage growth is declining.

“That does suggest … lessening wage pressures,” she said.

Though Powell has said that rapid wage growth is not a principal driver of inflation, pay raises can perpetuate price hikes, particularly in services such as restaurants, hotels and airlines, as companies pass on to customers the cost of higher labor through price increases.

Brainard also said the collapse of the FTX cryto exchange and its effects on other parts of the crypto universe, such as lender BlockFi, show that cypto is “highly concentrated, highly interconnected” and there “need to be strong regulatory guardrails.”

“It is really concerning to see that retail investors are getting hurt by these losses,” she said.

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November 14, 2022
Average long-term US mortgage rate back above 7% this week

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WASHINGTON — The average long-term U.S. mortgage rate returned to the 20-year highs of two weeks ago when rates breached 7% for the first time since 2002.

Mortgage buyer Freddie Mac reported Thursday that the average on the key 30-year rate rose to 7.08% from 6.95% last week. A year ago the average rate was 2.98%.

The rate for a 15-year mortgage, popular with those refinancing their homes, climbed to 6.38% from 6.29% last week. It was 2.27% one year ago.

Last week, the Federal Reserve raised its short-term lending rate by another 0.75 percentage points, three times its usual margin, for a fourth time this year as part of its inflation-fighting strategy. Its key rate now stands in a range of 3.75% to 4%.

More increases are likely coming, though there is some hope that the Fed will dial them down as more evidence comes in that prices have peaked.

The Labor Department reported Thursday that consumer inflation reached 7.7% in October from a year earlier, the smallest year-over-year rise since January. Excluding volatile food and energy prices, “core” inflation rose 6.3% in the past 12 months. The numbers were all lower than economists had expected.

Thursday’s report raised the possibility that the Fed could decide to slow its rate hike, a prospect that sent stock prices jumping as soon as the data was released.

Two weeks ago, the average long-term U.S. mortgage rate topped 7% for the first time in more than two decades, which combined with sky-high home prices, have crushed homebuyers’ purchasing power by adding hundreds of dollars to monthly mortgage payments.

Sales of existing homes have declined for eight straight months as borrowing costs have become too big of an obstacle for many Americans already paying more for food, gas and other necessities. Additionally, many homeowners seeking to upgrade or change locations have held off listing their homes because they don’t want to jump into a higher rate on their next mortgage.

The sagging housing market has prompted real estate companies to dial back their financial outlooks and shrink their workforces. Online real estate broker Redfin on Wednesday said it was cutting 862 employees and shutting down its instant-cash-offer subsidiary RedfinNow.

Redfin also laid off 470 employees in June, blaming slowing home sales. Through attrition and layoffs, Redfin has slashed more than a quarter of its workforce on the assumption that the housing downturn will last “at least through 2023,” it said in a regulatory filing.

Another online real estate broker, Compass, has laid off hundreds of workers this year.

While mortgage rates don’t necessarily mirror the Fed’s rate increases, they tend to track the yield on the 10-year Treasury note. The yield is influenced by a variety of factors, including investors’ expectations for future inflation and global demand for U.S. Treasurys.

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November 10, 2022
Here’s what the Federal Reserve’s fourth 0.75 percentage point interest rate hike means for you

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The Federal Reserve raised the target federal funds rate by 0.75 percentage point for the fourth time in a row on Wednesday, marking an unprecedented pace of rate hikes.

The U.S. central bank has raised the benchmark short-term borrowing rate a total of six times this year, including 75 basis point increases in June, July and September, in an effort to cool down inflation, which is still near 40-year highs and causing most consumers to feel increasingly cash strapped. A basis point is equal to 0.01 of a percentage point.

A policy statement after the announcement noted that the Fed is considering the “cumulative” impact of its hikes so far when determining future rate increases. Economists are hoping this signals plans to “step-down” the pace of increases going forward, which could mean a half point hike at the December meeting and then a few smaller raises in 2023. Still, stocks tumbled after Federal Reserve Chair Jerome Powell said there were more rate hikes ahead.

“Americans are under greater financial strain, there’s no question,” said Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business and former chief economist of the Securities and Exchange Commission.

More from Personal Finance:
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However, “as the Fed tightens, this also has adverse effects on everyday Americans,” he added.

What the federal funds rate means to you

The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and saving rates they see every day.

By raising rates, the Fed makes it costlier to take out a loan, causing people to borrow and spend less, effectively pumping the brakes on the economy and slowing down the pace of price increases.

“Unfortunately, the economy will slow much faster than inflation, so we’ll feel the pain well before we see any gain,” said Greg McBride, Bankrate.com’s chief financial analyst.

Already, “mortgage rates have rocketed to 16-year highs, home equity lines of credit are the highest in 14 years, and car loan rates are at 11-year highs,” he said.

How higher rates affect borrowers

• Mortgage rates are already higher. Even though 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, anyone shopping for a home has lost considerable purchasing power, in part because of inflation and the Fed’s policy moves.

Along with the central bank’s vow to stay tough on inflation, the average interest rate on the 30-year fixed-rate mortgage hit 7%, up from below 4% back in March.

On a $300,000 loan, a 30-year, fixed-rate mortgage at December’s rate of 3.11% would have meant a monthly payment of about $1,283. Today’s rate of 7.08% brings the monthly payment to $2,012. That’s an extra $729 a month or $8,748 more a year, and $262,440 more over the lifetime of the loan, according to LendingTree.

The increase in mortgage rates since the start of 2022 has the same impact on affordability as a 35% increase in home prices, according to McBride’s analysis. “If you had been approved for a $300,000 mortgage in the beginning of the year, that’s the equivalent of less than $200,000 today.”

For home buyers, “adjustable-rate mortgages may continue to be more popular among consumers seeking lower monthly payments in the short term,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion. “And consumers looking to tap into available home equity may continue to look towards HELOCs,” she added, rather than refinancing.

Ye t adjustable-rate mortgages and home equity lines of credit are pegged to the prime rate, so those will also increase. Most ARMs adjust once a year, but a HELOC adjusts right away. Already, the average rate for a HELOC is up to 7.3% from 4.24% earlier in the year.

• Credit card rates are rising. Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rises, the prime rate does as well, and your credit card rate follows suit within one or two billing cycles.

That means anyone who carries a balance on their credit card will soon have to shell out even more just to cover the interest charges. “This latest interest rate hike will most acutely impact those consumers who do not pay off their credit card balances in full through higher minimum monthly payments,” Raneri said.

Because of this rate hike, consumers with credit card debt will spend an additional $5.1 billion on interest, according to an analysis by WalletHub. Factoring in the rate hikes from March, May, June, July, September and November, credit card users will wind up paying around $25.6 billion more in 2022 than they would have otherwise, WalletHub found.

Already credit card rates are near 19%, up from 16.34% in March. “That’s the highest since the Fed began tracking in 1994 and is more than a full percentage point higher than the previous record set back in 2019,” according to Matt Schulz, chief credit analyst at LendingTree. And rates are only going to continue to rise, he said. “We’ve still got a ways to go before those rates hit their peak.”

The best thing you can do now is pay down high-cost debt — “0% balance transfer credit cards are still widely available, especially for those with good credit, and can help you avoid accruing interest on the transferred balance for up to 21 months,” Schulz said.

“That can be an absolute godsend for folks struggling with card debt,” he added.

Otherwise, consolidate and pay off high-interest credit cards with a lower-interest home equity loan or personal loan, Schulz advised.

• Auto loans are more expensive. Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans, so if you are planning to buy a car, you’ll pay more in the months ahead.

The average interest rate on a five-year new car loan is currently 5.63%, up from 3.86% at the beginning of the year and could surpass 6% with the central bank’s next moves, although consumers with higher credit scores may be able to secure better loan terms.

Paying an annual percentage rate of 6% instead of 5% would cost consumers $1,348 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

Still, it’s not the interest rate but the sticker price of the vehicle that’s causing an affordability problem, McBride said. “Rising rates doesn’t help, certainly.”

• Student loans vary by type. Federal student loan rates are also fixed, so most borrowers won’t be affected immediately. But if you are about to borrow money for college, the interest rate on federal student loans taken out for the 2022-2023 academic year are up to 4.99%, from 3.73% last year and 2.75% in 2020-2021.

If you have a private loan, those loans may be fixed or have a variable rate tied to the Libor, prime or T-bill rates, which means that as the Fed raises rates, borrowers will likely pay more in interest, although how much more will vary by the benchmark.

Currently, average private student loan fixed rates can range from 3.22% to 14.96%, and from 2.52% to 12.99% for variable rates, according to Bankrate. As with auto loans, they vary widely based on your credit score.

Of course, anyone with existing education debt should see where they stand with federal student loan forgiveness.

How higher rates affect savers

• Only some savings account rates are higher. The silver lining is that the interest rates on savings accounts are finally higher after several consecutive rate hikes.

While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate, and the savings account rates at some of the largest retail banks, which have been near rock bottom during most of the Covid-19 pandemic, are currently up to 0.21%, on average.

Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 3.5%, according to Bankrate, much higher than the average rate from a traditional, brick-and-mortar bank.

“Savers are seeing the best yields since 2009 — if they’re willing to shop around,” McBride said. Still, because the inflation rate is now higher than all of these rates, any money in savings loses purchasing power over time.

Now is the time to boost that emergency savings, McBride advised. “Not only will you be rewarded with higher rates but also nothing helps you sleep better at night than knowing you have some money tucked away just in case.”

“More broadly, it makes sense to be more cautious,” Spatt added. “Recognize that employment is maybe less secure. It’s reasonable to expect we’ll see unemployment going up, but how much remains to be seen.”

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November 2, 2022
Job openings hit 10.7M despite Fed attempts to cool economy

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WASHINGTON — U.S. job openings rose unexpectedly in September, suggesting that the American labor market is not cooling as fast as the inflation fighters at the Federal Reserve hoped.

Employers posted 10.7 million job vacancies in September, up from 10.3 million in August, the Labor Department said Tuesday. Economists had expected the number of job openings to drop below 10 million for the first time since June 2021.

For the past two years, as the economy rebounded from 2020’s COVID-19 recession, employers have complained they can’t find enough workers. With so many jobs available, workers can afford to resign and seek employment that pays more or offers better perks or flexibility. So companies have been forced to raise wages to attract and keep staff. Higher pay has contributed to inflation that has hit 40-year highs in 2022.

In another sign the labor market remains tight and employers unwilling to let workers go, layoffs dropped in September to 1.3 million, fewest since April. But the number of people quitting their jobs slipped in September to just below 4.1 million, still high by historical standards.

To combat higher prices, the Federal Reserve has hiked its benchmark interest rate five times this year and is expected to deliver another increase Wednesday and again at its meeting in December. The central bank is aiming for a so-called soft landing — raising rates just enough to slow economic growth and bring inflation down without causing a recession.

Fed Chair Jerome Powell has expressed hope that inflationary pressure can be relieved by employers cutting job openings, not jobs.

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November 1, 2022
Little sign of relief expected in September inflation data

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WASHINGTON — Any Americans hoping for relief from months of punishing inflation might not see much in Thursday’s government report on price increases in September.

Lower gas prices will probably reduce overall consumer inflation for a third straight month. But measures of “core” inflation, which are closely watched because they exclude volatile food and energy costs, are expected to return to a four-decade peak.

Economists have estimated that the government’s consumer price index jumped 8.1% in September from 12 months earlier, according to a survey by the data provider FactSet. That is a distressingly large gain, though below the 9.1% year-over-year peak that was reached in June.

Core prices are estimated to have risen 0.4% from August to September, slower than the previous month but still a much faster pace than was typical before the pandemic. Measured over the past 12 months, core prices are forecast to have surged 6.5%, up from 6.3% in August. That’s far above the 2% inflation that the Federal Reserve has long set as its target rate.

Thursday’s report will provide the final inflation figures before the Nov. 8 midterm elections after a campaign season in which spiking prices across the economy have fed widespread public anxiety, with many Republicans casting blame on President Joe Biden and congressional Democrats.

Inflation has escalated families’ grocery bills, rents and utility costs, among many other expenses, inflicting hardships on households and deepening gloom about the economy despite strong job growth and historically low unemployment.

As the election nears, Americans are increasingly taking a dim view of their finances, according to a new poll by The Associated Press-NORC Center for Public Affairs Research. Roughly 46% of people now describe their personal financial situation as poor, up from 37% in March. That sizable drop contrasts with the mostly steady readings that had lasted through the pandemic.

The September inflation report, whatever it shows, isn’t likely to change the Fed’s plans to keep hiking rates aggressively in an effort to wrest inflation under control. The Fed has boosted its key short-term rate by 3 percentage points since March, the fastest pace of hikes since the early 1980s. Those increases are intended to raise borrowing costs for mortgages, auto loans and business loans and cool inflation by slowing the economy.

Minutes from the Fed’s most recent meeting in late September showed that many policymakers have yet to see any progress in their fight against inflation. The officials projected that they would raise their benchmark rate by an additional 1.25 percentage points over their next two meetings in November and December. Doing so would put the Fed’s key rate at its highest level in 14 years.

Along with lower gas prices, economists expect to see that the prices of used cars tumbled in September after small declines the previous two months. Wholesale used car prices have dropped for most of this year, though the declines have yet to show up in consumer inflation data. (Used vehicle prices had soared in 2021 after factory shutdowns and supply chain shortages reduced production.)

Large retailers, too, have started offering early discounts for the holiday shopping season, after having amassed excess stockpiles of clothes, furniture and other goods earlier this year. Those price cuts might have lowered inflation in September or will do so in the coming months.

Walmart has said it will offer steep discounts on such items as toys, home goods, electronics and beauty. Target began offering holiday deals earlier this month.

Yet prices for services — particularly rents and housing costs — are remaining persistently high and will likely take much longer to come down. Health care services, education and even veterinary services are still rising rapidly in price.

“Services price increases tend to be more persistent than increases in the prices of goods,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, noted in remarks last week.

Rising rental costs are a tricky issue for the Fed. Real-time data from websites such as ApartmentList suggest that rents on new leases are starting to decline.

But the government’s measure tracks all rent payments — not just those for new leases — and most of them don’t change from month to month. Economists say it could be a year or longer before the declines in new leases feed through to government data.

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October 12, 2022
Little sign of relief expected in September inflation data

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WASHINGTON — Any Americans hoping for relief from months of punishing inflation might not see much in Thursday’s government report on price increases in September.

Lower gas prices will probably reduce overall consumer inflation for a third straight month. But measures of “core” inflation, which are closely watched because they exclude volatile food and energy costs, are expected to return to a four-decade peak.

Economists have estimated that the government’s consumer price index jumped 8.1% in September from 12 months earlier, according to a survey by the data provider FactSet. That is a distressingly large gain, though below the 9.1% year-over-year peak that was reached in June.

Core prices are estimated to have risen 0.4% from August to September, slower than the previous month but still a much faster pace than was typical before the pandemic. Measured over the past 12 months, core prices are forecast to have surged 6.5%, up from 6.3% in August. That’s far above the 2% inflation that the Federal Reserve has long set as its target rate.

Thursday’s report will provide the final inflation figures before the Nov. 8 midterm elections after a campaign season in which spiking prices across the economy have fed widespread public anxiety, with many Republicans casting blame on President Joe Biden and congressional Democrats.

Inflation has escalated families’ grocery bills, rents and utility costs, among many other expenses, inflicting hardships on households and deepening gloom about the economy despite strong job growth and historically low unemployment.

As the election nears, Americans are increasingly taking a dim view of their finances, according to a new poll by The Associated Press-NORC Center for Public Affairs Research. Roughly 46% of people now describe their personal financial situation as poor, up from 37% in March. That sizable drop contrasts with the mostly steady readings that had lasted through the pandemic.

The September inflation report, whatever it shows, isn’t likely to change the Fed’s plans to keep hiking rates aggressively in an effort to wrest inflation under control. The Fed has boosted its key short-term rate by 3 percentage points since March, the fastest pace of hikes since the early 1980s. Those increases are intended to raise borrowing costs for mortgages, auto loans and business loans and cool inflation by slowing the economy.

Minutes from the Fed’s most recent meeting in late September showed that many policymakers have yet to see any progress in their fight against inflation. The officials projected that they would raise their benchmark rate by an additional 1.25 percentage points over their next two meetings in November and December. Doing so would put the Fed’s key rate at its highest level in 14 years.

Along with lower gas prices, economists expect to see that the prices of used cars tumbled in September after small declines the previous two months. Wholesale used car prices have dropped for most of this year, though the declines have yet to show up in consumer inflation data. (Used vehicle prices had soared in 2021 after factory shutdowns and supply chain shortages reduced production.)

Large retailers, too, have started offering early discounts for the holiday shopping season, after having amassed excess stockpiles of clothes, furniture and other goods earlier this year. Those price cuts might have lowered inflation in September or will do so in the coming months.

Walmart has said it will offer steep discounts on such items as toys, home goods, electronics and beauty. Target began offering holiday deals earlier this month.

Yet prices for services — particularly rents and housing costs — are remaining persistently high and will likely take much longer to come down. Health care services, education and even veterinary services are still rising rapidly in price.

“Services price increases tend to be more persistent than increases in the prices of goods,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, noted in remarks last week.

Rising rental costs are a tricky issue for the Fed. Real-time data from websites such as ApartmentList suggest that rents on new leases are starting to decline.

But the government’s measure tracks all rent payments — not just those for new leases — and most of them don’t change from month to month. Economists say it could be a year or longer before the declines in new leases feed through to government data.

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October 12, 2022
US producer price inflation eases to still-high 8.5%

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WASHINGTON — Inflation at the wholesale level rose 8.5% in September from a year earlier, the third straight decline though costs remain at painfully high levels.

Wednesday’s report from the Labor Department also showed that the producer price index — which measures price changes before they reach the consumer — rose 0.4% in September from August, after two months of declines.

The September monthly increase was larger than expected and was pushed higher by a big increase in hotel room costs and higher prices for other services. Food costs also rose in September from August, after a slight drop the previous month. The cost of fresh and dry vegetables soared nearly 16% in September from August.

The larger-than-expected monthly increase in overall wholesale prices suggests inflation pressures are still strong in the U.S. economy, with the Federal Reserve likely to continue its rapid pace of interest rate hikes at its next meeting in November.

Wholesale gas costs fell last month, but will likely reverse in the coming months now that oil prices are rising again in the wake of planned production cuts by many oil exporting nations. Grocery bills are rising at their fastest pace in decades, and prices at the gas pump are rising again, squeezing consumers’ budgets.

Excluding the volatile food and energy categories, core prices rose 0.3% in September from August for the third straight month, and 7.2% compared with a year earlier.

Overall wholesale inflation peaked at 11.7% in March.

Services prices — including health care, lodging, and shipping — rose 0.4% in September, the most in three months. Federal Reserve officials have recently cited rising services prices as a source of concern, because they can take longer to reverse since they mostly reflect the impact of rising wages.

Health care costs rose last month, driven higher by a 0.7% increase in nursing home prices.

Stubbornly-high inflation is draining Americans’ bank accounts, frustrating small businesses and raising alarm bells at the Federal Reserve. It is also causing political headaches for President Joe Biden and congressional Democrats, most of whom will face voters in mid-term elections in less than a month.

The Fed has boosted its benchmark short-term interest rate by three percentage points since March to combat rising prices. It’s the fastest pace of rate hikes since the early 1980s. Higher rates are intended to cool consumer and business borrowing and spending and bring down inflation..

Wednesday’s producer price data captures inflation at an earlier stage of production and can often signal where consumer prices are headed. It also feeds into the Fed’s preferred measure of inflation, which is called the personal consumption expenditures price index.

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October 12, 2022