FILE: A home, available for sale, is shown on August 12, 2021 in Houston, Texas. Photo: Brandon Bell /Getty Images
SALT LAKE CITY — Borrowed money is about to get slightly more expensive, as the Federal Reserve is expected to raise its key interest rate by a quarter percent on Wednesday.
The interest rate increase is an attempt to slow inflation by first slowing borrowing and spending.
DMBA certified financial planner Shane Stewart said this comes after frenzied growth has over-inflated the economy.
“(The Fed move) is meant to slow that down a bit and let the economy catch its breath,” Stewart said. “So what that means for the average person is if you’re looking to make a major purchase like a home or a car, that money that you borrow will be slightly more expensive.
Stewart said the Fed raising rates will ultimately impact everything.
“It takes some time for that to trickle down,” Sewart said. “But it does affect just about every industry. Because if people are spending less, then it affects the business and a business might slow their production down or not have as many people working for them.”
This is why the Fed raises rates little by little over time. It’s called a “soft landing.”
“Where the economy’s been so high and they’re trying to bring it down with a soft landing, rather than a crash,” Stewart said.
The increases will be most noticeable in credit card rates, new mortgages and car loans.
But savings accounts will also get a small bump.
“I know that the number of those savings rates are up incredibly through the pandemic,” Stewart said. “Hopefully we now get higher returns on those in keeping up with inflation.”
“And we need to get higher rates of return because if you don’t have something that keeps up with inflation, you kind of go broke safely,” Stewart said.
The average rate for savings accounts is projected to increase from 0.06 percent to 0.11 percent this year, according to Bankrate.