Have you noticed the % increase in your statements YTD?
With inflation taking a bigger bite out of household budgets, consumers have loaded up on credit cards. Issuers typically use the Fed-influenced prime rate as a base to charge interest plus an additional spread. So Fed hikes cause an immediate spike.
Credit Card companies want you to make the “monthly payment” allowing the daily APR % on your total balances to keep you in the quicksand.
- Let’s say you had budgeted $397 a month to pay off $15,000 over 60 months on a credit card with a 19.9% APR. If the APR changed to 22.9%, you would need to pay $423 a month to clear the balance in the same amount of time.
- Note: Credit Card Debt for Consumers has reached a 40-year high as of late.
The Federal Reserve increased the funds rate by 75bps to 1.5%-1.75% during its June 2022 meeting, instead of 50bps initially expected, after the inflation rate unexpectedly accelerated last month to 41-year highs. It is the biggest rate increase since 1994, and Chair Powell signaled a similar move could come at the next meeting but he does not expect 75bps moves to be common.
- Policymakers see interest rates increasing to 3.4% this year, well above 1.9% expected in March. Meanwhile, the economy is seen expanding 1.7% this year, below 2.8% estimated in March and the growth outlook was also lowered to both 2023 (1.7% vs 2.2%) and 2024 (1.9% vs 2%).
- PCE inflation is seen higher at 5.2% in 2022 (vs 4.3% expected in March) while the outlook was revised lower for both 2023 (2.6% vs 2.7%) and 2024 (2.2% vs 2.3%).
- The jobless rate is seen higher for the 3-year period: 3.7% for 2022 (vs 3.5%), 3.9% in 2023 (3.5%) and 4.1% in 2024 (vs 3.6%).