Cost of borrowing increases as Federal Reserve raises interest rates
AUSTIN, Texas — On Wednesday The Federal Reserve raised interest rates by another three-quarter of a percentage point. According to Amplify Credit Union, that’s the highest raise we’ve seen since 2008
It’s also the fifth consecutive rate hike this year. CBS Austin’s Paige Hubbard spoke with a financial expert to break down how this announcement will impact your finances.
Amplify credit union CEO Kendall Garrison says the federal reserve has a dual mandate to maintain stable prices and employment at acceptable levels. With inflation being the highest we’ve seen in 40 years, Garrison adds the feds are increasing interest rates to try and slow down the economy and tame inflation.
“This is unchartered territory for a lot of people. So when we see short-term rates like this increase, it will be an increase in their borrowing cost for their credit cards, their mortgage loans, for their personal loans and their automobile loans so consumers are directly impacted by this fit action today,” Garrison said.
To help ease the blow there are steps borrowers can take.
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“Pay down credit cards if you have the ability to do that and lower your cost of borrowing personally. Increasing interest rates also impact savers so what you’re seeing is interest rates savings accounts in money market accounts on certificates of deposit. So, if you were a saver this is actually a good thing for you.
CBS Austin asked Garrison “so is this sort of like a balancing scale even though consumers are going to have to be paying more money that’s going to help us on the other hand with the economy?”
He responded “Every action by the federal reserve is a balancing act. It’s interesting these complicated policies can impact individuals in ways they haven’t seen over the course of their lifetime.”
If consumers are uncertain about how they should react in this current economic environment, Garrison suggests reaching out to their financial advisor.
“So it’s really a double edge sword depending on how you’re situated. If you have a credit card, those are generally variable rate instruments and so you will be impacted immediately. But if you're getting a new mortgage, you'll see that it is with a new mortgage that you have, but most mortgages are fixed-rate mortgages and don't really adjust as prime rates change. But that's been really interesting because we've seen rates increase over the course of the year. It's made borrowing more expensive for prospective homeowners,” Garrison said.
