The U.S. central bank announced the largest interest rate hike in nearly 30 years to step up efforts to rein in soaring consumer prices.
It raises the interest rate the Fed charges banks for borrowing by three-quarters of a percentage point.
The consequences will be felt in almost every corner of the economy, both in the U.S. and abroad.
Here are five ways a U.S. rate hike will affect you.
More expensive mortgages and other loans
The immediate impact is that in the U.S., people will face higher borrowing costs on mortgages, credit cards, student loans and other debt.
The average interest rate on a popular 30-year fixed home loan has soared to nearly 6 percent – the highest level since 2008. For people buying moderately priced homes in the U.S., that means monthly payments have increased by about $600 since early in the year.
“I wish I had started looking sooner,” said Delores Robinson, a retired educator from Ohio who bought a new condo this month.
Ms. Robinson said locking in a relatively low interest rate was a relief, even though it was higher than when she began her search. But for some buyers, rising interest rates will make buying out of reach.
The National Association of Realtors expects U.S. home sales to fall 9 percent this year.
Such a decline could be painful for those unable to buy, but price growth is also expected to fall to 5 percent by 2022 after double-digit increases in recent years.
If that happens, it will help lower inflation, suggesting that the Fed’s moves are working.
Smaller pensions and more expensive Uber rides
When interest rates rise, it often triggers a dramatic restructuring of investment. These moves are especially noticeable as general economic concerns rise.
For those who have money in the stock market, such as those with 401k retirement accounts, this means a sharp decline in the value of their investments.
Since the beginning of January, the S&P 500 has fallen more than 20 percent – a milestone known as a bear market – while the Nasdaq has fallen nearly a third.
The prices of risky assets such as cryptocurrencies have also fallen, and stock exchanges outside the U.S. have been hit.
Investment firms are also exiting riskier businesses, demanding profits from companies such as YouTubers that have been losing money for years.
That means people could face higher prices for things like cabs and deliveries – or see those companies go out of business, as is the case with some of the startups popping up in New York that promise 15-minute groceries.
“In times of uncertainty, investors seek safety,” YouTuber boss Dara Khosrowshahi wrote in a letter to employees last month that the company would take steps to boost profits, including slowing hiring. “It’s clear that the market is going through a sea change and we need to respond accordingly.”
Job market slowdown and recession risk
As demand cools and the booming labor market that followed the end of the epidemic comes to an end, companies are competing fiercely in a labor market that offers higher wages and other benefits to new hires and encourages many to switch jobs for better work.
Real estate giants Redfin and Compass announced plans this week to lay off hundreds of workers this week, citing the economic downturn and rising interest rates.
A host of large companies, including Amazon, Walmart, Tesla and Uber, including Spotify, have also announced plans to slow or stop hiring.
U.S. central bank governor Jerome Powell (Jerome Powell) has said he hopes the economy can avoid mass unemployment, noting that the U.S. labor market remains very tight – job openings for job seekers have nearly doubled.
But the economy is already facing challenges as inflation raises company costs and weakens people’s purchasing power.
Growth has contracted in the first three months of the year. While this is attributed to quirky international trade data, other indicators, such as retail sales, have begun to darken.
With higher interest rates clashing with a weak economy, the bank could bring about a continued slowdown, also known as a recession, analysts said.
Stronger dollar
The dollar has risen 10 percent this year as demand for it has been boosted by Federal Reserve moves that have prompted investors to move money to the U.S. in pursuit of higher returns.
For Americans planning trips to places like the U.K., the value of the pound fell below $1.20 this Monday – its lowest level since the pandemic – a ray of hope.
But elsewhere, a stronger dollar means higher import prices for commodities such as energy and food, which are often traded in U.S. dollars. That adds pressure to the economy, especially if the government holds a lot of dollar debt.
“Emerging markets tend to be the ones that really suffer the most,” said Fiona Cincotta, a market analyst at City Index.
Higher rates abroad
These developments mean that the U.S. is not hiking in a vacuum.
In recent months, dozens of other countries, including the Bank of England and Switzerland, have also announced rate hikes. Australia and Canada.
Many people are struggling with inflation. But they are also taking their cues from what is happening in the world’s largest economies.
In countries whose currencies are pegged to the U.S. dollar, such as Kuwait and Saudi Arabia, the impact of U.S. interest rate hikes has been almost immediate, with banks raising rates in lockstep as they try to control the outflow of funds to the U.S.
The economic situation in the U.S. will continue to be closely watched as these moves begin to have an impact on the ground.