— This is the script of CNBC’s financial news report for China’s CCTV on September 22, 2022.
This is the third time the Federal Reserve has hiked interest rates by 75 basis points. For individual consumers, while that’s not the rate they pay directly, the Federal Reserve’s moves are actually affecting the lending and savings rates they see every day.
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Since most credit cards have variable interest rates, this is directly related to the Federal Funds Rate. Consumers with credit card debt will pay a total of $5.3 billion in additional interest as a result of this rate hike, according to an analysis by Personal Finance website WalletHub. If you factor in all rate hikes from March so far, credit card users will pay about $20.9 billion more in 2022.
Regarding auto loans, the Federal Reserve’s latest move could push the average interest rate on new auto loans to over 6%. For a total of $40,000, the repayment term of 72 months of new auto loans, consumers will pay an additional $1,348 in interest at an annual interest rate of 5% to 6%, according to US auto sales and information services firm Edmunds. In addition, home loans will also increase. Of course, the Fed’s rate hike will also cause bank deposit rates to rise slowly, which is good news for those with savings.
In general, current US consumption remains strong, mainly because the job market is still hot and basically in a state of full employment. Low unemployment and rising wages may sound good, but the Federal Reserve will worry that inflation will remain high as a result. Powell has previously repeatedly stressed that the Fed would like to see a slowdown in the labor market to ease inflation.
Then, at that meeting, the Fed predicted that a rate hike would push the unemployment rate higher. From 3.7% now to 3.8% in Q4 to 4.4% in Q4 next year. And as for the slowdown in the labor market, the market’s interpretation is that this means a recession is inevitable.
Chief Executive Officer, DoubleLine Capital
“Well, a very strong indicator of a recession is when the unemployment rate breaks above its 12-month moving average. So if the Fed is right and the unemployment rate rises to 4.4 by the end of the year, that will be a confirmatory indicator of a recession.”
In addition to raising interest rates, the Fed is also reducing the balance sheet. There has not been such a tight monetary policy for years. We will also update you if we see a significant drop in US inflation.