Fed Up Friday: How the Rate Hike May Impact US Economy
Unsurprisingly, the Fed decided to raise rates this week to a range between 0.5 -0.75%. Janet Yellen cited dropping unemployment as one of the primary reasons the FOMC green lit an increase. However, an economy so dependent on cheap money for so long may find it difficult going through the withdrawals of higher rates, especially in mortgage and auto loan markets.
Increasing Mortgages Could Make Homeownership Harder for More People
We’ve enjoyed a bottomed out 3.5% interest rate on 30 year mortgages for a long time. That’s significantly lowered the barrier to homeownership in the US. Unfortunately, higher long term rates, which are continuing to rise, will find more support from the Fed’s move. Increase monthly payments will threaten not only new applications, but existing homeowners trying to make ends meet. Many people are still finding it difficult to afford a mortgage payment. After Wednesday’s rate hike, that barrier might become much bigger.
Pay down Your Credit Cards: Rate Hike Could affect those immediately
Credit experts are saying that the interest rate for the plastic in your wallet is directly linked to the Fed. That means in very short order, we should see credit card rates begin to rise up. These changes won’t be felt in large part initially, unless you’re carrying a large sum of debt on your account. However, with the Fed hinting at three hikes in 2017, anyone who hasn’t taken a large chunk out of their debt could see multi-percent increases in their monthly payments to cover the interest.
China’s Yuan Collapses to 8-Year Low Following US Rate Hike
With a rate hike generally there is a short-term increase of the dollar’s value, and Wednesday was no exception. That spelled trouble for the Yuan, as it plummeted to an 8-year low price at 6.9 per dollar. Borrowing rates also rose, suggesting that Chinese officials might be discouraging short-selling to keep the currency afloat.
This marks another setback in a tough year for the Yuan, and China’s market players have been slowly losing interest in it. They’re ultimately weary that the fiat currency will continue its slow motion dive into 2017.
Stock Market Will Eventually Struggle Under Rate’s Weight
The buzz in the stock market continues following Wednesday’s hike, but many are predicting that to be short-lived. Investors are seeing opportunities from the President-elect’s proposed tax cuts and business deregulation. That means already over-priced stocks and higher interest rates are expected to cause a decline in consumer and business spending. If the Fed really plans on continuing these rate hikes, they’re sorely underestimating the nation’s ability to taper off its own addiction to cheap money.
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