US Federal Reserve hikes interest rate amid banking turmoil: Does this affect American credit card spending, home loans?


The global economy is in trouble and all eyes were looking in one direction — the United States of America. On Wednesday, the Federal Reserve raised interest rates again, despite fears that the move could add to financial turmoil after a string of bank failures.

The US central bank increased its key rate by 0.25 percentage points, to a range of 4.75 per cent to five per cent, its highest level in 16 years. This marks the ninth consecutive increase in one year since the US central bank began the current rate-raising cycle to combat rising prices

While announcing the rise in interest rates, Federal Reserve chairman Jerome Powell said the Fed remained focused on its inflation fight. He described Silicon Valley bank as an “outlier” in an otherwise strong financial system. However, he acknowledged that the recent turmoil was likely to drag on growth, with the full impact still unclear.

The Fed’s decision to increase rates is a somewhat contentious move given the recent banking failures — the collapse of Silicon Valley Bank, Signature Bank — the US has experienced, and some economists fear that higher interest rates could further weaken the financial sector. However, the US central bank, it appears, says the banking sector is stable enough to handle higher rates.

As Moody’s chief economist Mark Zandi said in a VOX report, “The Fed’s taking a chance with the banking system when they raise rates. It shows a willingness by the Fed to look beyond the crisis and keep its eye on inflation.”

But, what does this mean for the common American man? How does all of this affect his life? We break it all down and simplify the matter at hand.

Federal Reserve and interest rates

The Federal Reserve is the central bank of the United States; it is best known as the orchestrator of the world’s largest economy, determining how much it costs businesses and consumers to borrow money.

The federal funds rate refers to the interest rate that banks charge other institutions for lending excess cash to them from their reserve balances. This means that when the Fed raises rates, as it did on Wednesday, it translates to more expensive borrowing.

Federal Reserve Board Chair Jerome Powell holds a news conference after the Fed raised interest rates by a quarter of a percentage point in Washington, US. Reuters

Impact on wallets

So, how will the rise in interest rates impact the Americans. Higher interest rates mean the cost to buy a home, borrow to expand a business or take on other debt goes up.

The Federal Reserve doesn’t directly dictate how much interest an individual pays on their card debt. However, the Fed’s rate is the basis for the bank’s prime rate. The latest hike will likely raise the annual percentage rate (APR) on a credit card by 0.25 per cent. This means that the average APR of a 20.4 per cent will increase to 20.64 per cent.

The latest rate increase will cost American credit card users a collective $1.7 billion in added interest charges over the next 12 months, according to a study from WalletHub

When it comes to home loans, there won’t be much change in the mortgage rates. This is because mortgages have fixed rates that are priced with a far longer time frame. However, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

When it comes to Americans wishing to buy a car, the Fed’s decision will play spoilsport. Though auto loan rates don’t move in step with the Fed’s policy rate, experts say the Fed’s latest move could increase the average APR on a 48-month new car loan by about 12 basis points over the coming months.

As a Bankrate analyst explained, “The increased Fed rate, sitting at 4.75 per cent to five per cent following the March meeting, will indirectly affect your rates. So even as sky-high vehicle prices have fallen 4 percent since its peak this past summer, the increase in interest rates will still result in a more expensive experience overall.”

While borrowing has become more expensive owing to the hike in rates, there’s a silver lining for savers. Savings accounts could see a moderate rise in interest payouts as the benchmark rate rises.

Also read: SVB collapse: How system-wide problem created by Fed led to US’ second-largest bank failure

Stocks drop off

The Federal Reserve’s announcement to raise interest rates didn’t fare well at Wall Street. Stocks skidded lower as investors balked at the decision to raise interest rates. The S&P 500 initially jumped after the decision was announced, before falling sharply toward the end of trading, finishing 1.65 per cent lower for the day. The Dow Jones Industrial Average ended 1.6 per cent lower while the tech-heavy Nasdaq Composite Index fell 1.6 per cent.

Don Calcagni, chief investment officer for the wealth manager Mercer Advisors told the New York Times, “This is the Fed making the same policy error that it has routinely made in its history. I think the Fed is slow to react to significant stress in the banking system.”

The Federal Reserve’s announcement to raise interest rates didn’t fare well at Wall Street. AP

The global banking turmoil

The Fed’s rise in interest rates come at a very precarious time. The global banking sector has seen some rude shocks in recent days and it all began with California-based Silicon Valley Bank (SVB). On 10 March the bank collapsed — the biggest US banking failure since the 2008 financial crisis — prompting regulators to seize control the same day. So far, the regulators have been unable to find a buyer for SVB and are now considering breaking up the bank, according to Bloomberg.

Also read: 5 banks, 2 weeks: How the banking crisis unfolded

A week on, a second US regional bank — Signature Bank — shut down. Days later, San Francisco-based First Republic Bank sees its stock market valuation plunge and its shares tumble.

And most recently, UBS — Switzerland’s biggest bank — announced it would be buying embattled Credit Suisse for $3.25 billion (Rs .26 lakh crore) in hopes of stopping a wider international banking crisis. The takeover was announced after the 167-year-old lending institution’s shares nosedived to record lows.

With inputs from agencies

Read all the Latest NewsTrending NewsCricket NewsBollywood News,
India News and Entertainment News here. Follow us on FacebookTwitter and Instagram.

Also Read




'Badhaai Do' movie,1,'The Kerala Story',2,'Zeeshan Maggie Point',1,"kerala story",1,@preganest,1,accident,2,Actor Salman Khan,1,Actress Priyanka Chopra,1,Air India,1,Arjun Tendulkar,1,Arshia Goswami,1,Article,4,Barbed wire,1,Bhopal,2,Bike Rider Agastya Chauhan,1,bodyguard missbehave,1,Box Office Collection,1,Boxing Champion Mary Kom,1,Bundelkhand,1,Business,23,Chhatarpur,1,CM Shivraj Singh Chouhan,4,codecanyon,3,Comedian,1,Congress MLA Omkar Singh Markam,1,Controversial Movie,1,converting to Islam,1,couples goal,1,creativity,1,Crime news,1,Deadlifts 60 kg,1,Deendayal Antyodaya Rasoi Kendras,1,Delhi airport,1,Delhi metro,1,Development Scheme,1,Dhirendra Shastri,1,Disastrous Plastic Surgeries,1,District hospitals,1,Diwali a National Holiday,1,Donatella Versace,1,DPR,2,Dubai woman,1,Education / Employment,2,Eid Party,1,Eight-Year-Old,1,Elections 2024,2,Entertainment,14,Environment,1,Fashion,1,Female Engineer Uber Driver,1,Film 'Kisi Ka Bhai Kisi Ki Jaan',1,Filmfare Awards 2023,1,first water metro,1,Food,2,Government,1,Hakuto-R,1,health sector,1,IIFA 2023,1,IIT Indore,1,India,1,India news,4370,Indian Muslim,1,Indian news,1,Indore,3,Indore court,1,instragram,1,IPL,1,IPL 2023,2,Kanya Vivah-Nikah Yojana,1,Katrina Kaif,1,Kochi,1,Latest news,1,Lifestyle,6,Lifstyle,1,loss of cat,1,Lucknow,1,Maa Kali',1,Madhya Pradesh,19,Mahakal lok,1,Mahakaleshwar temple,1,main,19,Man naked and garlanded with shoes,1,Mantralya,1,Men wearing skirt,1,Menstrual Hygiene Day 2023,1,Mexican Giant Turtle,1,MIT,1,mobile phone,1,modular kitchens,1,Moon,1,MP Weather Update,1,Mumbai,2,Munawwar Farooqui,1,National,162,National Paper Airplane Day 2023,1,Navlakha,1,News,1,Nick Jonas,1,Northeastern University,1,Nothing Phone (1),1,Pennsylvania,1,pet parrots,1,plants mango saplings,1,PM Narendra Modi,3,politics,1,PTI – The Siasat Daily,3,Rachit Agarwal,1,Rashid rover,1,Realme Narzo N53,1,record-breaking century,1,renewable energy sector,1,Royal deaths,1,Rs 70 lakh,1,Russia Ukraine ongoing conflict,1,Sagar,1,salman khan,1,Sanatan Dharma,1,Sara Tendulkar,1,Sardar Vallabhbhai Patel Park,1,Shah Rukh Khan,1,Shah Rukh Khan's Airport Video goes viral,1,Shalini's Unconventional Divorce Photoshoot,1,Shubam Gill,1,Shubham Gill,1,Six-month-old Infant Dies,1,Social Dynamics,1,social media,1,South Actresses,1,South Africa,1,South Indian Comedian,1,Spending husband's money,1,Sports,16,Summer Season,1,Tarek Fatah,1,Tech,3,Temples,1,Trending,1,tweet,1,Ujjain,1,Ukraine Defence Ministry,1,University of Glasgow,1,US-Canada Border,1,US-India Visa,1,Vicky Kaushal,1,video viral,2,viral video,3,Virat Kohli and Gautam Gambhir,2,Water crisis,1,WiFi,1,Wildlife,1,Wired Food Combinations,1,World News,2097,youtuber,1,
US Federal Reserve hikes interest rate amid banking turmoil: Does this affect American credit card spending, home loans?
US Federal Reserve hikes interest rate amid banking turmoil: Does this affect American credit card spending, home loans?
ASE News
Loaded All Posts Not found any posts VIEW ALL Readmore Reply Cancel reply Delete By Home PAGES POSTS View All RECOMMENDED FOR YOU LABEL ARCHIVE SEARCH ALL POSTS Not found any post match with your request Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS PREMIUM CONTENT IS LOCKED STEP 1: Share to a social network STEP 2: Click the link on your social network Copy All Code Select All Code All codes were copied to your clipboard Can not copy the codes / texts, please press [CTRL]+[C] (or CMD+C with Mac) to copy Table of Content