Five Ways Rising US Rates Will Affect You

The US central bank announced its biggest rate hike in nearly 30 years as it intensifies its battle to rein in soaring consumer prices, the BBC reported.

He raised the rate the Federal Reserve asks banks to borrow by three-quarters of a percentage point.

The consequences will be felt in almost every corner of the economy – in the United States and abroad.

Here are five ways rising US rates will affect you.

More expensive mortgages and other loans

The immediate impact is in the United States, where people will face higher borrowing costs for mortgages, credit cards, student loans and other debt.

The average rate on the popular 30-year fixed home loan has already climbed to almost 6% – its highest level since 2008. For someone buying a median-priced home in the US, that means monthly payments have risen. of about $600 since the start of the year.

“I wish I had started looking sooner,” says Delores Robinson, a retired educator from Ohio, who bought a new apartment this month.

Ms Robinson says she was relieved to lock in a relatively low rate, although it is higher than it was when she began her search. But for some buyers the rate hike will make shopping out of reach, according to the BBC.

The National Association of Realtors expects US home sales to fall 9% this year.

This drop may seem painful for those prevented from buying, but it is also expected to slow price growth to 5% in 2022, after double-digit gains in recent years.

If that happens, it will help lower inflation, a sign that the Fed’s measures are working.

Smaller guesthouses and more expensive Uber rides

When rates take off, it tends to cause a drastic reshuffling of investments. And with the rise of general economic concerns, these movements have been particularly pronounced.

For those with money in the stock market, such as people with 401k retirement accounts, this has resulted in a sharp drop in the value of their investments.

The S&P 500 has fallen more than 20% since early January – a stage known as the bear market – while the Nasdaq has lost almost a third of its value.

Risky assets, like cryptocurrencies, also saw their prices plummet, and exchanges outside the United States were also affected, the BBC reported.

Investment firms are also retreating from riskier ventures, demanding profitability from companies like Uber that have operated at a loss for years.

This means that people are likely to face higher prices for things like taxi rides and deliveries – or see these companies fold, as has been the case for a number of start-ups that have emerged in New York promising 15-minute races.

“In times of uncertainty, investors seek security,” Uber boss Dara Khosrowshahi wrote in a letter to staff last month about steps the company would take to try to improve its bottom line, including by slowing down hiring. “Clearly the market is experiencing a seismic shift and we need to respond accordingly.”

Slowdown in the labor market and risk of recession

As demand cools, it ends the boom in the post-pandemic labor market, which has seen companies compete fiercely for workers, allowing new hires to earn higher wages and jobs. other perks and encouraging many to change jobs for better.

Real estate giants Redfin and Compass this week announced plans to cut their workforces by the hundreds this week, citing slowing and rising rates.

A slew of big companies like Uber, including Amazon, Walmart, Tesla and Spotify, have also announced plans to slow down or halt hiring.

US central bank chief Jerome Powell said he hoped the economy would avoid massive job losses, noting that the US labor market remains very tight – with job openings nearly doubling looking for a job, according to the BBC.

But the economy was already facing challenges, with inflation increasing business costs and reducing the purchasing power of citizens.

Growth has already contracted in the first three months of the year. And while that was blamed on a quirk in international trade data, other indicators, like retail sales, have started to darken.

As higher rates come up against a weakening economy, analysts say the bank risks causing a long-lasting downturn, also known as a recession.

stronger dollar

The US dollar has risen 10% this year as Fed decisions prompting investors to transfer money to America in search of higher yields, which has boosted demand for its currency.

For Americans planning trips to places like the UK, where the value of a pound fell below $1.20 this week – its lowest since the pandemic – it’s a silver lining.

But elsewhere, the rising US currency means more expensive imports of commodities like energy and food, which are often traded in dollars. This adds to economic stress, especially if a government holds a lot of dollar debt.

Emerging markets tend to be the markets most at risk of suffering,” says Fiona Cincotta, market analyst at City Index.

Higher rates abroad

This dynamic means that the United States does not walk in a vacuum.

Dozens of other countries have also announced rate hikes in recent months, including the Bank of England in Switzerland. Australia and Canada.

Many are fighting their own battles against inflation. But they are also inspired by what is happening in the world’s biggest economy, the BBC reported.

In places like Kuwait and Saudi Arabia, where currencies are pegged to the dollar, the impact of US rate hikes is almost immediate, with banks advancing at the same pace as they try to contain a outflow of funds to the United States.

As these moves begin to be felt on the ground, economic history in the United States will continue to be closely watched.

About Shirley Hudson

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