Wednesday (Sept. 21), to no one’s surprise, the Fed announced an increase to rates of 75 basis points for the third time in a row, an overall fifth increase this year. Chair Jerome Powell maintains that a strict monetary policy is the way to fight inflation, which increased in August despite projected declines. Hopefully, we will start seeing our grocery bills shrink, but the biggest impact we’ve seen with these rate increases has been within the housing and car markets.

In January 2021, the 30-year mortgage rate dropped to 2.65% and contributed to the housing boom we’ve experienced for the last 18 months. Today, rates are closing in on 7%, with the potential to cross over 7% by the end of the year with this recent Fed rate increase. For reference, payments on a $400,000 loan would increase by about $1,000 per month when rates increase from 3% to 7%. Could this increase in rates be the cause of a 30% lower purchase index compared to last year? Houses in many areas are starting to spend more time on the market, and we are even seeing price drops.

What Does This Mean for You?

Jerome Powell is clear that he understands that rate increases are going to cause “some pain to households and businesses,” according to a speech at the Federal Reserve’s annual Jackson Hole Economic Symposium in August. As we saw yesterday, markets dipped about 1.7% after the announcement. Unless inflation declines steeply, this might not be the last rate increase we see this year.

And it’s not just the market; employment is seeing a big shift as well. We are past the Great Resignation, and some companies have even instituted layoffs.

With this continued fluctuation in the market, make sure your accounts (including real estate) are allocated properly and can weather the upcoming turbulence.

It’s also time to check in on any variable payments that you have — variable-rate loan payments are going up. If you’re carrying balances on home equity lines or credit cards, see if you have options to consolidate into fixed-rate loans. For investment accounts, see what steps to take as interest rates rise. And if you are in the market for a new house or car, make sure to factor in a higher interest rate when calculating what you can afford. Here is the direct link to our calculators page to help you figure out a payment sweet spot.

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