What Happens When the Fed raises Interest Rates?
|Raising interest rates takes money
from those who work for a living and puts it in the pockets of those who
own (and loan) for a living.
A 1% rise in interest rates will cost a family earning $25,000-$50,000 a-year with mortgage, installment and credit card debt an additional $569 a-year in interest payments.
A family earning $50,000-$100,000 a-year with similar debts will pay $887 in additional annual interest.
Figured nation-wide, the dollar flow from borrower to lender is simply stupendous:
Credit Cards: Half the current $600 billion in credit card debt is on a variable rate basis. A 1% rise in interest rates would mean an immediate $3 billion a-year increase in interest payments to the money lenders.
Home Mortgages: Variable-rate home mortgage debt currently totals $1 trillion.
A 1% rise in interest rates would cost consumers an additional $10 billion in interest payments in the first 12 months. (Consumers would immediately pay an additional $1 billion a-year in interest on home equity loans.)
The National Association of Home Builders estimates 10 million families would be forced out of the market for moderately-priced homes if interest rates on 30-year fixed mortgages rose from the current average 8% to 9%.
Student loans: Rates are pegged to the annual yield on Treasury bills. When that rate rises, so does the cost of student loans.
Car Loans: Thanks to higher interest rates last year, commercial banks and finance companies pocketed an additional $106 to $142 on the average auto loan.
Job Loss: Higher interest rates also raise the
price of U.S.-made goods, eliminating jobs in export-sensitive industries.
Source: Consumer Federation of America and the Financial