Federal Reserve interest rate hike could increase cost of housing and car

With the Federal Reserve signaling on Wednesday that it will soon raise interest rates to fight inflation, economists believe now may be a good time to buy big-ticket items such as vehicles and homes.

After keeping interest rates at historic lows for most of the pandemic, the Fed is now saying it would soon be appropriate to raise the target range for the federal funds rate to help achieve price stability. The increase could take place as early as March.

And while soaring inflation is already driving up prices – making everything from food to gas more expensive, big-ticket items that require financing will become even more expensive as rates rise. interest will increase.

“Some people may need to buy now before interest rates rise…” Dana Peterson, chief economist at the Conference Board, a trade research nonprofit, said Thursday during a briefing on inflation. “A new car and a used car are very expensive right now. But if you want to finance it, it’s probably going to be even more expensive once interest rates go up.”

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The latest data from the US Department of Labor reflects a seasonally adjusted 0.5% increase in prices in December, as determined by the Consumer Price Index, which measures changes in retail prices. The increases in the index were largely attributable to the rise in the cost of housing and used cars and trucks.

Prices rose 7% for the 12 months to December, the biggest annual increase in 40 years, the department said.

By raising interest rates, and therefore the cost of borrowing to buy cars, businesses, appliances and homes, the Fed hopes that Americans will save more of their money rather than spending it. This would slow business activity and lower inflation.

It is also expected to slow economic growth.

Peterson said polls indicate that despite the omicron and inflation, big purchases such as vacations, appliances and cars are still a concern for consumers, who plan to hand out the cash for them over the next few months. next three to six months.

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With inflation, prices continually rise, she says. It’s not good for anyone.

“Practically, people might consider accelerating their buying or borrowing now before interest rates rise,” she said.

Although Peterson said it was not her job to give advice, she thinks the focus should be less on rising interest rates and more on the higher prices consumers are currently paying.

“People of all colors and incomes are facing higher prices for just about everything,” said “Especially low-income people, for every dollar they get, they spend a lot of that dollar for necessities like food and energy, and they’re running out of discretionary income or they don’t have any.”

Contact IndyStar reporter Alexandria Burris at [email protected] or call 317-617-2690. Follow her on Twitter: @allyburris.

Stephen V. Lee