EDITOR'S NOTE: The Fed raised interest rates by 50 basis points last week. Wall Street is well aware of the possibility that the Fed may take a more aggressive stance toward rate hikes in the coming months, possibly raising rates by 75 basis points. While we watch with some degree of fascination how the markets react to the Fed’s moves and telegraphed intentions, we experience the lagging Main Street effect, for our fabric of daily living is spent mostly on that segment of the economy. Truth is, our wage gains are being outpaced by inflation. Our capacity to afford daily necessities is being eaten away by rising prices. Some analysts have called for “peak inflation,” yet a good portion of the surge in costs originates from abroad; namely, the Russia-Ukraine war. The rest comes from the inflated money supply, which is now about to get squeezed. Where does that leave us? First, it’s impossible to predict where things may be heading in the coming months. Too many variables to make a sound forecast. Second, it’s highly unlikely the Fed can put a lid on the inflationary surge without crashing the economy. With uncertainty being the only constant, the only constant principle is to maintain and rebalance your hedge. Hopefully, you’ve already begun hedging, and rebalancing your gold and silver to take advantage of the ups and downs that serve as strategic buying points for both metals.
Higher interest rates means consumers will pay more to borrow.
The Federal Reserve is expected to announce a 50-basis point interest rate hike on Wednesday in what will be the second of several anticipated increases this year as the central bank seeks to combat soaring inflation, which is at a high not seen in four decades.
While the Fed's actions are closely monitored by Wall Street, people on Main Street will be impacted, too and should expect to pay more for car loans, mortgages and credit card balances.
AGGRESSIVE RATE HIKES PLANNED FOR 2022
John Lonski, president of Thru the Cycle and former chief capital markets economist at Moody's Analytics, says consumers might not feel the pain of the Fed's initial rate increase of 25 basis points earlier this year, but they will certainly notice the hikes if they continue through 2022 as policymakers have signaled.
After the 50 basis point hike on Wednesday, some economists say the Fed may be even more aggressive at other meetings this year, perhaps raising rates by 75 basis points.
Although a series of rate increases is expected, forecasting the Fed's behavior for the rest of the year is "a fool's errand" given the uncertainty with Russia's war on Ukraine, Lonski told FOX Business.
Rates for a 30-year fixed mortgage already crossed above 5% as tracked by Freddie Mac. So people considering the purchase of a house should not put it off – historically rates at these levels are still considered attractive.
While sky-high home prices have already made ownership unaffordable for many would-be buyers, higher rates may cool bidding wars.