Credit cards, mortgages and jobs: How the Fed’s latest rate hike will affect you

The Federal Reserve is working hard to slow down inflation, so it raised interest rates. Again.

At the Fed’s July meeting, the committee voted unanimously to raise interest rates three-fourths of a point, according to a July 27 news release. The Fed credited high inflation, higher food and energy prices, and the Russo-Ukrainian war as influencing its decision.

This is the second rate hike of three-fourths a point in a row following the Fed’s meeting in June.

Experts anticipated the latest increase, but it will still have impacts on the economy, especially for consumers.

Here’s what you need to know.

Be wary of credit card debt

Short-term rates will be the first to feel the hike. That includes credit card interest rates and payments.

Credit card rates are expected to climb the same amount as the Fed’s set rate. With the 75-basis point increase, credit card users can expect to pay an additional $4.8 billion this year on interest alone, according to an analysis from WalletHub.

Factoring in hikes from March, May, June and July, users will pay $12.9 billion to $14.5 billion more in 2022 than they otherwise would have, the analysis shows.

The best way to get ahead of painful payments? Avoid having to pay interest at all. Experts are warning credit card users to be careful with their spending and to stay up to date on payments as much as possible to avoid hefty fees.

“Top $$ tip: if you’ve got credit-card debt, pay it off. If you still have one of those zero-percent credit-card rate offers? Take it! Because the Fed’s war on inflation is raising your monthly payments,” Jennifer Westhoven, a CNN anchor, said in a tweet.

Mortgage rates look bleak

There is good news and bad news when it comes to the housing market.

The good news: The housing market already adjusted ahead of the official rate hike, so mortgage rates likely will not see any major increases. The bad news: Mortgage rates are already high, and they will probably stay that way.

As mortgage rates have increased, housing sales have slowed and home prices have decelerated, recent data shows. This could be indicative of a bigger shift in the industry and the economy as a whole, Joel Prakken, chief U.S. economist for IHS Markit Experts, told McClatchy News.

“That could be part of the household balance sheet adjustment,” Prakken said.

As households adjust, sellers and those employed within the real estate industry could feel pressure.

“Higher mortgage rates have clearly already slowed housing demand. That makes it harder to sell a house if you were thinking about doing it,” Prakken said. “It undermines the incomes of anybody who is in that endeavor, real estate agents, brokers and so on.”

The slowdown in housing sales has already permeated the industry down to the number of housing starts and the amount of construction necessary to meet demand, straining the workforce in industries like construction, Prakken said.

Unemployment could climb

The rate hike could also put employment pressure on other industries, experts say.

While the most obvious and immediate impact of the increased rate is on short-term loans, there are also long-term impacts that will come from the Fed’s attempt at slowing economic activity.

Some experts suggest that the labor market will soften as households and businesses are constrained by higher rates. This would be the most detrimental impact of the rate hike, Josh Bivens, director of research at the Economic Policy Institute, told McClatchy News.

“Some people will lose jobs, others will lose hours of work, and millions will find it harder to wring wage increases out of their employers,” Bivens said.

A softening labor market could also put pressure on unemployment rates, which have stayed strong and stable at 3.6%, just above the pre-pandemic February 2020 rate. Reversing the labor market’s growth would be more detrimental to consumers than current inflationary pressures, Bivens said.

“Any potential benefit to consumers from the recent round of rate increases that comes from slower inflation will be more-than-counter-balanced by slower wage growth,” Bivens said.

‘It’s going to feel bad’

The Fed’s goal by raising rates is to slow down the economy.

“They’re hoping they can tap on the brakes enough to reduce the demand for labor enough that job openings and vacancies decline, but we don’t really get into employment itself,” Prakken said.

Whether that is possible is hard to tell. Experts suggest, however, that consumers should prepare for slower economic growth and higher unemployment rates until 2024.

“It’s going to feel bad,” Prakken said. “People will try to duck and cover, but the objective of the Fed is to slow the economy enough to take pressure off the labor markets even if that runs the risk of causing a recession.”

As consumers adjust their balance sheets to account for higher rates, for example by waiting to buy a new car or a new house, they are contributing exactly how the Fed wants: limiting their spending, which in turn will weaken the demand for labor and give supply a chance to catch up.

U.S. second quarter gross domestic product data will be released Thursday, July 28, and will give experts greater insight into next steps and the state of the economy.

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