Fed raises interest rates by highest level since 1994

KOLD News 6-6:30 p.m. recurring
Published: Jun. 15, 2022 at 7:16 PM MST
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TUCSON, Ariz. (KOLD News 13) - The US Federal Reserve raised short term interest rates by ¾% on Wednesday, June 15, the biggest increase since 1994. The hike is needed, it believes, to tamp down inflation which is running at its highest level in 40 years.

The goal is to have a “soft landing” which means to lower inflation to 2% without disruption to the labor market.

Bud Fed Chair Jerome Powell said some “factors are out of our control” such as the war in Ukraine.

“It’s really a little bit of a catch-22,” said Andrew Blease, owner of Blease Financial. “You want to have a little inflation but not too much.”

It will be tricky according to Powell who said, “we are not trying to create a recession.”

So what does it mean for the average consumer who has a mortgage, maybe a car payment and some credit card debt.

“If anybody has balance on credit cards, I think you want to consider paying those off the best you can,” Blease said. “Really don’t pay interest on credit cards because the interest rates are going to get higher on those.”

He says don’t worry about the home mortgage or car loans which are likely low interest to begin with if they’re not highly leveraged.

“Quite frankly, those are historically low rates,” he said.

But getting into a new mortgage right now is an idea which should be carefully considered even though the housing inventory is likely the highest it’s been in a while.

Interest rates stand at 5.99% according to Jodi Koch, President of the Tucson Association of Realtors.

“We have been told in the industry that interest rates will probably go up three or more times before the end of the year,” Koch said.

That will add an already large amount of interest on a new home.

Koch said the average home in Tucson increased in price $60,000 in the past year and interest rates have nearly doubled. That means a median priced home would have had a $1,350 monthly payment last year but that same home will have a $2,190 monthly payment this year.

Still, those higher interest rates are bringing stability to a market which has been unstable since the beginning of the pandemic.

“We’re already seeing some price reductions,” Koch said. “After a week or two they’re realizing they’re chasing the market down instead of climbing, and so yeah, we’re going to see a healthy more realistic market.”

That’s the kind of results the fed is hoping to see in rest of the economy – a reduction in demand to bring down prices.

The supply side is pretty much out of the fed’s control so it may take a while to see the results.

“I don’t think it’s going to happen real quickly in grocery stores, it more of a supply issue there,” Blease said. “But that should hopefully start to open up in the fourth quarter as well.”

Which, if the supply chains loosen up, gas prices will ease as well.

Still, it’s a risk on the part of the fed to balance rising interest rates in such a way as to not cause the economy to slip into a recession, especially raising the rates so quickly.

“They’re trying to get a curb on not going into recession not going into hyperinflation,” Blease said. “We’ll have to see if that was the right move as far at that goes.”

It’s still unknown and a lot could go wrong.

“There’s still a lot of headwinds but I think it was a good move by the fed,” Blease said.

And if the results mirror the Tucson housing market, it could be.

“The email came in today from the first builder who said, look we’ve lowered our base prices on all our new builds,” Koch said. “Come check them out today.”

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