Federal Reserve officials are predicting three rate hikes over the course of next year. The rate hikes are meant to tamp down the current spike in inflation. But they could also raise the cost of borrowing for many consumers.
The rate hikes would likely affect certain types of loans first, said Mayra Rodríguez Valladares at MRV Associates.
“Consumer loans, and credit cards are incredibly sensitive to interest rates. And so immediately consumers will feel it there,” she said.
Interest rates on long-term government bonds could also rise, said Nate Tobik at Complete Bank Data.
That’s likely to affect the cost of mortgages, home equity lines of credit, and commercial loans.
“As treasuries go up or down, all of those loans and benchmark rates that are tied to those Treasury rates are also going to adjust,” he said.
That said, interest rates might not rise that much. Tobik said banks are flush with cash right now. People’s savings have grown during the pandemic, and loan demand has fallen.
As a result, he says banks might want to keep their interest rates competitive.
“Any cash being lent, is better than cash sitting on the balance sheet,” he said.
And because banks have all that cash, Tobik said they aren’t likely to raise rates they pay for savings accounts by much.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.