What the Federal Reserve’s rate hikes mean for Lubbock borrowers

LUBBOCK, Texas (KCBD) — The price for borrowing money is rising as the Federal Reserve plans a series of rate hikes this year.

It is a response to rising inflation. The country has experienced a historic rise in inflation over the past year.

The consumer price index increased by 6% in the second half of 2021. This is five times more than in 2020.

Now the Federal Reserve is taking a more aggressive approach to try to bring the economy back into alignment.

“It’s almost like a forest fire,” Arnold said. “You want controlled combustion, but you don’t want it to get out of control. The Fed is trying to set some parameters around this inflation and keep it under control. »

These parameters take the form of interest rate hikes, perhaps as early as next month.

This will be just one of many likely increases in the prime rate, each of about a quarter of a percent.

“This is all in response to rising inflation,” Arnold said.

This inflation caused by historically low interest rates since March 2020, coupled with stimulus checks, PPP loans and other measures taken to stimulate the pandemic economy.

“Consumer goods, energy costs are going up, housing costs are going up, electricity costs are going up,” Arnold said. “Anything we can watch and measure. We don’t see anything coming down.

There are only a few ways to withdraw this money from the system. One of them consists in raising these interest rates.

“They’re playing catch-up,” Arnold said.

Forcing a fall in demand to allow the money supply to stabilize. This should lower consumer prices, but lower prices now are just a byproduct of paying more over time. It is a price that borrowers will have to pay to restore economic balance.

“There’s always a balancing act that the Fed has,” Arnold said. “How fast can we raise interest rates, but not fast enough to shut down the economy. So there may be temporary difficulties in paying more to borrow money, but overall, for the economy, that’s not necessarily a bad thing.

This means that any loan from a bank will cost you more in the long run. This includes auto loans, student loans, or the mortgage on your home. These rates will all go up

“It’s a good time to borrow money,” Arnold said. “If you have a job and the ability to repay, it will be cheaper to borrow money on February 22 than on May 22 or July 22.”

Although consumers pay a higher rate for almost every loan they receive, there is also an opportunity to earn money on certain types of accounts.

Deposit rates on compound interest savings accounts will also increase.

Those rates will be below prime, but Arnold says they should start climbing by the end of the year.

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