Interest Rate Increases are Coming – How Much More Will You Pay in NJ?
With inflation continuing to heat up dramatically the Federal Reserve is expected to approve the first of many interest rate increases next week.
Rutgers University economist James Hughes said no one is sure whether we’ll see an increase of a quarter percent, a half percent or higher but “it’s definitely going to take place just because of the inflation metrics that we’ve been experiencing.”
He said over the past several months we’ve seen inflation spike to the highest level since the early 1980s when we saw high double-digit rates.
How much more will you have to pay?
While a 1% increase seems unlikely right now, especially with gas prices exploding because of the Russian invasion of Ukraine, Hughes pointed out if the Fed did increase rates that much it would mean an additional $90 a month for someone who gets a $100,000 mortgage, “but again we’re coming off of record low-interest rates, right now they’re approaching 4%.”
He said any increase in the rate will increase the cost of getting a mortgage, but compared to 1982 when interest rates were in the 18% range “people would be doing a happy dance if they could get a mortgage rate at 4% or 5% or even 6%.”
What happens if you have credit card debt?
Hughes said if people have credit card debt they will probably wind up paying more but in the coming months but there’s no real way to say how much more because “there’s such a wide range of situations on what institutions charge their borrowers on the credit card.”
He noted if we’re still in the early phase of a series of interest rate increases “it’s going to be relatively modest for the most part so really we’re looking at really a situation that’s going to unfold for the balance of the year.”
He pointed out it may take quite a bit of time to break the inflationary cycle that we’re in right now because “we’re still getting supply chain disruptions which are increasing costs, we still have labor shortages which are increasing costs and inflation.”
He said energy costs are factored into the inflation rate so “you know we’re looking at a year of sustained inflation, maybe even a period of long inflation, we’re certainly in a period where inflation is for real.”
“It was in hibernation for many years but now it has awoken," he added.
Hughes said as interest rates start going up it may cool down the housing market.
Watching the Fed
He said everyone will be watching the Fed very carefully next week.
“They’re not going to be too reckless in terms of too huge of a jump, but we could be in for sustained meeting after meeting raising the benchmark interest rate,” said Hughes.