From 401Ks to Mortgage Rates and Auto Loans: How the Fed's Rate Hikes Will Impact You

“Car loan rates are the highest in 11 years.”

The Federal Reserve announced the sixth interest rate increase of the year on Wednesday in an effort to fight inflation. It was the fourth straight 0.75 percentage point increase in 2022. "The impact of what's been done isn't fully reflected yet," says Chester Spatt, professor of finance at Carnegie Mellon University's Tepper School of Business and former chief economist of the Securities and Exchange Commission.

"Inflation hasn't come down much so far, in part because these policies take a while to kick in… the impacts on the consumer have created potentially difficult economic circumstances and are likely to get considerably worse as we get more of these rate hikes kicking in." Here's what to expect, according to experts.

1
Mortgage Rates

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Homeowners beware mortgage rates are at record highs. "Rates resumed their record-setting climb, with the 30-year fixed-rate mortgage reaching its highest level since April of 2002," says Sam Khater, Freddie Mac's chief economist.

"Demand has completely fallen off the table. Affordability was strained already from the surge in home prices, when you layer on top of that this never-before-seen pace in mortgage rates it compounds the problem."

2
Auto Loans

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The average interest rate on a five-year new car loan is up from 3.86% at the beginning of 2022 to 5.63%, and could even go as high as 6%. "Car loan rates are the highest in 11 years," says McBride. The sticker price of the car is causing affordability issues, McBride says. "It's the $45,000 or $50,000 people are borrowing that's the problem."

3
401Ks

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What about retirement accounts? "Rising interest rates affect stocks and bonds in different ways," says Certified Financial Wellness Facilitator Terry Turner. "Stocks historically lose value during times of higher interest rates, and they tend to suffer more when high inflation is present. This trend tends to reverse itself when interest rates start falling again. Bonds and other fixed-income investments tend to perform better than stocks in high-interest environments. Bonds, for example, are still likely to lose value but not as much as stocks and only in the short term. Falling interest rates make existing bonds more valuable."

4
Personal Spending

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Personal spending may decrease as people feel the crunch and try to cut back on non-essentials. "Borrowers are feeling the squeeze from both sides as inflation has stretched household budgets while borrowing costs for homebuyers, car buyers and credit card borrowers have increased at the fastest pace in decades," says McBride.

5
Credit Cards

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Credit card rates will be going up, experts warn. "It's very important that people are aware that their credit card rate is going to go up," says Beverly Harzog, a credit card expert and consumer finance analyst for U.S. News & World Report. "And if you do have credit card debt, it's time to take steps to get rid of that."

Ferozan Mast
Ferozan Mast is a science, health and wellness writer with a passion for making science and research-backed information accessible to a general audience. Read more
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