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  • [Narrator] The Federal Reserve has signaled that it would begin steadily raising interest rates in mid-March.

  • Against a backdrop of elevated inflation and a strong labor market, our policy has been adapting to the evolving economic environment.

  • [Narrator] It's the latest step the Fed is taking toward removing stimulus to bring down inflation and marks the first time it has raised borrowing costs since December of 2018.

  • Expectations of a faster pace of rate rises prompted investors to change strategies they had used for nearly two years,

  • leading to the worst stock market selloff since the early days of the pandemic.

  • WSJ personal finance reporter J.J. McCorvey breaks down how the rate hike could affect mortgages, loans, credit cards and your retirement planning.

  • (pensive music)

  • The market's rates have already been increasing in anticipation of the Fed rate hikes but now they're expected to go up even more through 2022.

  • However, if you have a 30-year fixed rate mortgage,

  • you have less reason to worry because your rate is locked and you likely won't be affected.

  • [Narrator] While fixed rate mortgages have a set interest rate for the life of the loan,

  • repayments on adjustable-rate mortgages become more expensive when interest rates go up.

  • The rate increase could also pose challenges for those shopping for a home.

  • For people who are new home buyers, the higher rates could make it harder to qualify for a mortgage.

  • [Narrator] Even small rate increases can be costly if applied to big purchases when stretched over the life of a multi-year loan.

  • Rising rates will impact both private and federal student loans.

  • New interest rates apply to only new loans but people who have existing private loans might have the option to refinance.

  • Refinancing student loans could be a good option for those who qualify for a better rate based on changes in credit or income.

  • When it comes to auto loans, similar to fixed rate mortgages, most won't be affected if you already have one because they usually come with a fixed interest rate.

  • But if you're shopping for a car, a new loan with higher interest means you'll be paying a little more money.

  • Interest rates on credit cards are typically not fixed.

  • In fact, credit card interest rates change almost immediately after a Fed rate increase.

  • If your interest rate rises, so could your minimum payment and that could make it harder to pay off debt.

  • While higher interest rates means more money can be earned from savings, if you carry a credit card balance month to month,

  • a higher interest charge could be applied to those balances.

  • Paying balances in full will help avoid additional costs.

  • If you have an interest bearing savings account, that could mean a little more money for you but how much that changes depends on your bank.

  • [Narrator] The national average interest rate for savings accounts is .06% but some banks have savings rates higher than the national average, which will earn savers more money.

  • Experts say fixed rate savings, such as annuities and short-term bond yields will also rise.

  • This could benefit folks who live off interest.

  • Markets have already experienced some volatility due to the expected rate hike, which has pushed some investors towards safer bets.

  • [Narrator] Those safer bets could include dividend stocks and gold exchange traded funds, some of which have outperformed this year.

  • (pensive music)

  • Federal Reserve Chairman Jerome Powell has left the door open to raising rates at consecutive policy meetings, which are held about every six weeks.

  • The Fed hasn't raised rates at that frequency since 2006.

  • While Powell says he expects inflation rates to decline through the course of the year, he admits the economic outlook remains highly uncertain.

  • With this in mind, we will remain attentive to risks,

  • including the risk that high inflation is more persistent than expected and are prepared to respond as appropriate to achieve our goals.

  • (pensive music)

[Narrator] The Federal Reserve has signaled that it would begin steadily raising interest rates in mid-March.

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How a Fed Interest Rate Increase Could Affect You | WSJ

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    moge0072008 posted on 2022/04/23
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