What you need to know about the Fed’s interest rate hike
CHICAGO – The Federal Reserve announced its fourth straight historically large interest rate hike Wednesday.
The Fed approved a 0.75 percentage point increase in an effort to slow spending and get inflation under control.
WGN News Now spoke to mortgage broker and owner of Molitor Financial Group, Troy Molitor about the move.
“It’s important to remember the Federal Reserve is the bank that lends money to banks. So, when we have an environment in the economy when inflation is getting out of control, right now it’s in the eights (8%) which is some of the highest numbers we’ve seen probably in 40 years,” Molitor said. “So, the Federal Reserve has to step in and use the tools that it can to try and bring those costs back down and make things more affordable for folks on a day-to-day basis. Going to the grocery store, purchasing a car, a lot of the services that people use … are all being impacted by inflation.”
According to Molitor, raising interest rates on money used for car loans, credit cards and other types of short-term financing will help the Federal Reserve slow spending, and once spending comes down so will inflation.
Molitor said the after-effects of Covid are also playing a factor, specifically the supply chain issues.
“There are a lot of products and a lot of things that haven’t been available in the quantities that they used to be so we’re still running into shortages of things you’d purchase off the shelf, clothing and different items,” Molitor said. “Even the effect that Covid has had on the car industry with decreasing the number of chips that are available. So, what happens is those costs go up and it mimics standard inflation.”
Molitor believes the Federal Reserve will continue to step up efforts to slow inflation.
“They’ve already made four increases so far and inflation is still in the eights (8%). Their goal is to try and get it down in the twos (2%). That’s quite a spread and it’s going to take some time to get it to that point,” he said.
Molitor believes the holidays will be difficult for many people because costs on items are going to be higher.
He also thinks this climate of raising interest rates to fight inflation will be around for a while, until the costs of products and services become affordable again.
Molitor suggests every individual and family reevaluate their finances and structure their budget.
“Look at the income you have. Look at the typical expenses you have and just strategize how and where you’re spending your money,” he said. “It is definitely a difficult landscape to navigate so having some type of a plan and not just kind of winging it, is probably the only advice that I can give.”
Molitor adds everyone’s situation is different depending on what they’re experiencing in their life.
He said you can always reach out to your credit card company and ask them to lower the interest rate on your card.
He recommends you discuss your current situation which is likely different than when you were first approved for the card.
“You can always look into credit cards with your bank, your credit union and find out where their rates are at, or there are websites you can go to that will help you select credit cards that are better for your situation. Might have points that you can use… or lower rates,” Molitor said. “You have to remember that these companies make money off of lending the money out, so they are going to try and compete with each other.”
Molitor said to remember that this is a cycle and things will adjust as this plays out. He added to constantly revisit your financial environment and continue to live your life.
“It’s not the end of the world. Life will continue. It just squeezes a little bit,” Molitor said. “It’s not fun but we’ll get through it, and keep your focus.”
See what Molitor had to say about mortgage rates and lowering the interest on your credit cards in the video above.
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