Higher interest rates mean loans will be more expensive for businesses and consumers, and everyone ends up spending more on interest payments, whether that’s a car loan, your credit card rate, your mortgage, or other private loans.
“Things that get affected immediately are business-operating lines of credit, your Ag producer’s lines of credits, things like that. Or if you have a credit card that’s tied to a variable interest rate, those will go up immediately too,” said Brett Fiddler, a Mortgage Loan Officer for Town and Country Credit Union.
The feds hiked the rates up once again in hopes of bringing down the effects brought on by soaring inflation rates.
“So, when you cool down a really hot economy by raising interest rates, everything slows down, things become more expensive, and consumers quit spending as much as they normally would. And that’s by design. They want the rates to slow the economy, so maybe soon they can start dropping rates and maybe our dollar will weaken as well,” said Fiddler.
Chairman Jerome Powell said in a press conference on Wednesday that he and his colleagues plan to stay the course until inflation is down to 2%.
We are far from that, sitting at 8.1%.
Jerome Powell, the Chair of the Federal Reserve said, “I don’t have any sense that we’ve over-tightened or moved too fast. I think it’s been a good and successful program that we’ve gotten this far this fast. Remember though that we still think there’s a need for ongoing rate increases. And we have some ground left to cover here. And cover it, we will.”
This signals there could be another hike at the next meeting in December.
The latest hikes have intensified stress on home buyers, who now have questions.
“If the Federal Reserve raises its interest rates, does that mean mortgage rates are going to go up? Not necessarily,” said Fiddler.
30-year conventional mortgage rates are sitting at about 7 to 7.5 %, which is still high.
But home buyers could expect to see a slight dip as the economy starts to slow.
Luckily, first-time home buyers in North Dakota have an advantage, compared to other states.
“We are very lucky that we have the only state-owned bank in the union, and with that, we have a really good first-time home buyer loan program through North Dakota housing. And so, we can get first-time home buyers in for a lower interest rate than a lot of other states,” explained Fiddler.
Despite the repercussions of rising interest rates, Powell says the central bank has a responsibility to bring inflation under control.
Rates are expected to peak at around 4.5% in 2023.
That means the cost of borrowing will continue to get more expensive, as more rate hikes are likely to follow.
The next Federal Reserve Open Market Committee meeting is scheduled for December 13th and 14th.