— This is the script of CNBC’s financial news report for China’s CCTV on September 22, 2022.
This is the third time that the Federal Reserve has raised interest rates by 75 basis points. For individual consumers, although that is not the rate they pay directly, the Federal Reserve’s moves actually influence the borrowing and saving 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. According to an analysis by WalletHub, a personal finance website, consumers with credit card debt will pay a total of $5.3 billion in additional interest as a result of this rate increase. If you take into account all the interest rate hikes from March until now, credit card users will pay about $20.9 billion more in 2022.
In terms of car loans, the latest move by the Federal Reserve could bring the average interest rate on new car loans above 6%. According to the US auto sales and information service provider Edmunds, for a total of $40,000, the loan term of 72 months of new car loans, if the annual interest rate is from 5% to 6%, consumers will pay an extra $1,348 in interest . In addition to this, home loans will also rise. Of course, the Fed’s rate hike will also drive a slow rise in bank deposit rates, which is good news for those who have savings.
In general, the current US consumption is still 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 for the Federal Reserve, it will worry about inflation staying high as a result. Powell has repeatedly stressed before that the Fed wants to see a slowdown in the labor market to ease inflation.
Then in this meeting, the Fed predicted that a rate increase would push up the unemployment rate. From the current 3.7% to 3.8% in the 4th quarter, until 4.4% in the 4th quarter of next year. And for the cooling of the job market, the market’s interpretation is that this means a recession cannot be avoided.
Chief Executive Officer, DoubleLine Capital
“Well, a very strong indicator of recession is when the unemployment rate crosses its 12-month moving average. So if the Fed is right, and the unemployment rate rises to 4.4, by year-end, that will be a corroborative indicator of recession .”
In addition to raising interest rates, the Fed is also unwinding the balance sheet at the same time. Such tight monetary policy has not been seen in years. We will also keep you posted on when we can see a meaningful decline in US inflation.