The Fed’s Cure for Inflation Could Hurt Your Wallet

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What's Happening Today

The Fed is stepping up its battle against inflation—and the fight could impact your wallet in more ways than one.

Today, officials at the Federal Reserve are meeting to discuss how much they'll hike the central bank's benchmark interest rate as part of their ongoing campaign to control inflation. They'll announce what they decide tomorrow afternoon, and most experts are looking for another 75 basis-point jump (a hefty chunk by historical standards) but an aggressive 100-point hike isn't out of the question.

A higher fed funds rate means it's more expensive for banks to borrow money, so they'll likely charge you more interest on your credit cards and loans. Also, if you're looking to buy a home, the fed funds rate indirectly affects your mortgage rates, which are already on a sharp upward trajectory. Businesses are impacted too, since higher interest rates make it harder to borrow money, expand their operations, and hire new workers.

With the Fed's higher rates creating such a drag on the economy, it's little wonder that many economists see a recession hitting as soon as next year.

- Diccon

Editors' Picks

Mortgages Up to $715,000 May Not Be 'Jumbo' Anymore (The Balance)

Health Insurance Cancellation Laws (The Balance)

Climbing Housing Costs Could Prop Up Inflation for a While (The Wall Street Journal)

Fed Set To Reveal 'Pain' Coming in Next Stage of Inflation Fight (Bloomberg)

Biden's Income-Driven Repayment Plan Would Turn Student Loans Into Untargeted Grants (Brookings Institution)

How To Use Slack for Your Job Search (The Balance)

Savings Account vs. 529: Which Should I Choose? (The Balance)

Term of the Day

Jumbo Loan

A jumbo loan (also called a "non-conforming loan") is a home loan that is larger than "conforming" loans that lenders sell to Fannie Mae and Freddie Mac.

Jumbo loans get their name from the large loan balances available. Conforming loans for 2022 are capped at $647,200 in most parts of the country and have additional rules on borrower qualifications.

In some high-cost areas, loan limits go much higher to account for local housing markets. For example, in Los Angeles County, the 2022 limit is $970,800 (the one-unit baseline of $647,200 multiplied by 150% since it is a high-cost area).

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Off the Charts

U.S. Treasury bills, bonds, and notes are a bellwether for fixed mortgage rates, and both have risen as the Fed raises interest rates to counter inflation.