The Fed's 3x3
This week the Federal Reserve signed off on its third consecutive three-quarter point rate hike, lifting the benchmark federal funds rate to a range of 3-3.25%.
That's an unprecedented pace of rate-rises in modern history, signaling the Fed's strong resolve to get double-digit inflation under control. No other hiking cycle has started this steeply since the Fed started targeting the Effective Funds Rate in the 1980s.
For borrowers, this is obviously bad news. Although not always immediate, borrowing costs on mortgages, credit cards and car loans will rise. Indeed, the average 30-year fixed-rate mortgage hit 6.29% this week — the highest since 2008 (chart here). There is, of course, a silver lining for savers as rates on cash deposits should rise — although you may have to shop around to get the best deal.
Unlike when it first appeared on your lockdown dating profile, the Fed's new-found fondness for hiking looks here to stay. Officials project that rate rises will continue into 2023, with estimates that the target rate will hit around 4.6% by the end of next year. Equity investors were surprised again by this week's news, with US stocks down another 3% since Monday.