What the next Federal Reserve Meeting will mean for personal loans

A worried man sitting on a desk with his hand on his forehead.

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Hint: Borrowers may not be happy with the answer.

Main idea

  • This week the Federal Reserve will meet and may raise interest rates to combat inflation.
  • If the Fed raises interest rates, the cost of personal loans may increase.
  • Anyone who is sure they need a personal loan may want to proceed with an application ASAP.

The cost of goods affected consumers from the beginning of 2022 until the end. And while inflation has slowed over the past few months, the Federal Reserve is not happy with where it is.

That’s a mixed bag for consumers. On the one hand, it is good to see that the Fed is on a mission to reduce the level of inflation, because this can reduce the stress on consumer budgets. On the other hand, in order to reduce the level of inflation, the Fed is implementing an increase in interest rates designed to drive the cost of loans up. And if that situation continues, the price of many loan products, from auto loan to personal loancan fly.

Meanwhile, the Fed is meeting on January 31 and February 1 to review its interest rate policy, among other things. And if the Fed decides to implement another rate hike, it could spell bad news for borrowers.

This is a low cost loan option

It is a common misconception that the Federal Reserve is directly responsible for setting consumer loan rates, such as home loan rates and mortgage rates. What the Fed sees as the federal funds rate is the rate that banks pay each other for short-term borrowing purposes.

But when the Fed raised federal funds rate, appears to increase the cost of consumer borrowing. So if the Fed raises interest rates again this week, personal loans can become more expensive, such as loans like. credit card.

In fact, the trash that is personal loans is often referred to as a cheap, cheap way to borrow money. But that is the time of borrowing costs no sky-high on the board. And if the Fed raises interest rates again, we can get to the point where even personal loans become a bad borrowing option.

Consumers should prepare for another price hike

In December, the Consumer Price Index, which measures changes in the price of consumer goods, rose 6.5% a year. That’s a significant improvement from November, when the index recorded a 7.1% annual increase in prices. But all that said, we are far from where the Fed wants.

So, traders should expect another interest rate hike this week. Whether it will be steep or not is yet to be determined, but either way, the Fed is not done fighting inflation. And we may be in for another series of price increases in 2023. That is the best reason to apply for a personal loan as soon as possible if there is a need to borrow money.

So the news is as good as it gets refinance a mortgage, a personal loan can be refinanced. Customers start with a more expensive price that can be reduced over time. But we may not see consumer interest rates drop for a while, so anyone needing a personal loan should act. before reduced financial capacity.

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