The Fed is widely expected to hike rates by 75 basis points, bringing the rate to a range of 3.75% to 4%, its highest since 2008, in its fourth unusually large rate hike this year. Many consumer loans like credit card debt and car loans are indirectly determined by that rate. Many banks use the fed funds rate as a benchmark to set their own prime rates that they use to determine interest rates on loans. The fed funds rate also influences mortgage rates. That means it’s likely going to get harder to borrow money to buy things, which is exactly what the Fed wants. The less people buy, the less demand there will be for goods and services, and—hopefully—companies won’t be able to raise prices at the fast and furious pace they have been for the past year. It could also make it harder for businesses to get money to invest and expand and hire workers, which means the more the Fed raises rates, the greater the likelihood the economy slows down so much it goes into a recession. One area where the Fed’s monetary tightening campaign has already taken a heavy toll is the housing market. While the average rate on a 30-year fixed-rate mortgage decreased slightly in the latest week for the first time in over two months at 7.06%, it was still close to its highest since 2002 according to the Mortgage Bankers Association. Those high interest rates have stifled homebuying and refinancing. The volume of mortgage applications dropped 0.5% in its sixth consecutive week of declines.
