Business
How the Fed’s rate hikes could affect your finances
NEW YORK (AP) — The Federal Reserve’s move Wednesday to raise its key rate by a half-point brought it to a range of 4.25% to 4.5%, the highest level in 14 years.
The Fed’s latest increase — its seventh rate hike this year — will make it even costlier for consumers and businesses to borrow for homes, autos and other purchases. If, on the other hand, you have money to save, you’ll earn a bit more interest on it.
Wednesday’s rate hike, part of the Fed’s drive to curb high inflation, was smaller than its previous four straight three-quarter-point increases. The downshift reflects, in part, the easing of inflation and the cooling of the economy.
As interest rates increase, many economists say they fear that a recession remains inevitable — and with it, job losses that could cause hardship for households already badly hurt by inflation.
Here’s what to know:
WHAT’S PROMPTING THE RATE INCREASES?
The short answer: Inflation. Over the past year, consumer inflation in the United States has clocked in at 7.1% — the fifth straight monthly drop but still a painfully high level.
The Fed’s goal is to slow consumer spending, thereby reducing demand for homes, cars and other goods and services, eventually cooling the economy and lowering prices.
Fed Chair Jerome Powell has acknowledged that aggressively raising interest rates would bring “some pain” for households but that doing so is necessary to crush high inflation.
WHICH CONSUMERS ARE MOST AFFECTED?
Anyone borrowing money to make a large purchase, such as a home, car or large appliance, will take a hit, according to Scott Hoyt, an analyst with Moody’s Analytics.
“The new rate pretty dramatically increases your monthly payments and your cost,” he said. “It also affects consumers who have a lot of credit card debt — that will hit right away.”
That said, Hoyt noted that household debt payments, as a proportion of income, remain relatively low, though they have risen lately. So even as borrowing rates steadily rise, many households might not feel a much heavier debt burden immediately.
“I’m not sure interest rates are top of mind for most consumers right now,” Hoyt said. “They seem more worried about groceries and what’s going on at the gas pump. Rates can be something tricky for consumers to wrap their minds around.”
HOW WILL THIS AFFECT CREDIT CARD RATES?
Even before the Fed’s latest move, credit card borrowing rates had reached their highest level since 1996, according to Bankrate.com, and these will likely continue to rise.
And with prices still surging, there are signs that Americans are increasingly relying on credit cards to help maintain their spending. Total credit card balances have topped $900 billion, according to the Fed, a record high, though that amount isn’t adjusted for inflation.
John Leer, chief economist at Morning Consult, a survey research firm, said its polling suggests that more Americans are spending down the savings they accumulated during the pandemic and are using credit instead. Eventually, rising rates could make it harder for those households to pay off their debts.
Those who don’t qualify for low-rate credit cards because of weak credit scores are already paying significantly higher interest on their balances, and they’ll continue to.
As rates have risen, zero percent loans marketed as “Buy Now, Pay Later” have also become popular with consumers. But longer-term loans of more than four payments that these companies offer are subject to the same increased borrowing rates as credit cards.
For people who have home equity lines of credit or other variable-interest debt, rates will increase by roughly the same amount as the Fed hike, usually within one or two billing cycles. That’s because those rates are based in part on banks’ prime rate, which follows the Fed’s.
HOW ARE SAVERS AFFECTED?
The rising returns on high-yield savings accounts and certificates of deposit (CDs) have put them at levels not seen since 2009, which means that households may want to boost savings if possible. You can also now earn more on bonds and other fixed-income investments.
Though savings, CDs, and money market accounts don’t typically track the Fed’s changes, online banks and others that offer high-yield savings accounts can be exceptions. These institutions typically compete aggressively for depositors. (The catch: They sometimes require significantly high deposits.)
In general, banks tend to capitalize on a higher-rate environment to boost their profits by imposing higher rates on borrowers, without necessarily offering juicer rates to savers.
WILL THIS AFFECT HOME OWNERSHIP?
Last week, mortgage buyer Freddie Mac reported that the average rate on the benchmark 30-year mortgage dipped to 6.33%. That means the rate on a typical home loan is still about twice as expensive as it was a year ago.
Mortgage rates don’t always move in tandem with the Fed’s benchmark rate. They instead tend to track the yield on the 10-year Treasury note.
Sales of existing homes have declined for nine straight months as borrowing costs have become too high a hurdle for many Americans who are already paying much more for food, gas and other necessities.
WILL IT BE EASIER TO FIND A HOUSE IF I’M STILL LOOKING TO BUY?
If you’re financially able to proceed with a home purchase, you’re likely to have more options than at any time in the past year.
WHAT IF I WANT TO BUY A CAR?
Since the Fed began increasing rates in March, the average new vehicle loan has jumped more than 2 percentage points, from 4.5% to 6.6% in November, according to the Edmunds.com auto site. Used vehicle loans are up 2.1 percentage points to 10.2%. Loan durations for new vehicles average just under 70 months, and they’ve passed 70 months for used vehicles.
Most important, though, is the monthly payment, on which most people base their auto purchases. Edmunds says that since March, it’s up by an average of $61 to $718 for new vehicles. The average payment for used vehicles is up $22 per month to $565.
Ivan Drury, Edmunds’ director of insights, says financing the average new vehicle with a price of $47,000 now costs $8,436 in interest. That’s enough to chase many out of the auto market.
“I think we’re actually starting to see that these interest rates, they’re doing what the Fed wants,” Drury said. “They’re taking away the buying power so that you can’t buy a vehicle anymore. There’s going to be fewer people that can afford it.”
Any rate increase by the Fed will likely be passed through to auto borrowers, though it will be slightly offset by subsidized rates from manufacturers. Drury predicts that new-vehicle prices will start to ease next year as demand wanes a little.
HOW HAVE THE RATE HIKES INFLUENCED CRYPTO?
Cryptocurrencies like bitcoin have dropped in value since the Fed began raising rates. So have many previously high-valued technology stocks.
Higher rates mean that safe assets like Treasuries have become more attractive to investors because their yields have increased. That makes risky assets like technology stocks and cryptocurrencies less attractive.
Still, bitcoin continues to suffer from problems separate from economic policy. Three major crypto firms have failed, most recently the high-profile FTX exchange, shaking the confidence of crypto investors.
WHAT ABOUT MY JOB?
Some economists argue that layoffs could be necessary to slow rising prices. One argument is that a tight labor market fuels wage growth and higher inflation. But the nation’s employers kept hiring briskly in November.
“Job openings continue to exceed job hires, indicating employers are still struggling to fill vacancies,” said Odeta Kushi, an economist with First American.
WILL THIS AFFECT STUDENT LOANS?
Borrowers who take out new private student loans should prepare to pay more as as rates increase. The current range for federal loans is between about 5% and 7.5%.
That said, payments on federal student loans are suspended with zero interest until summer 2023 as part of an emergency measure put in place early in the pandemic. President Joe Biden has also announced some loan forgiveness, of up to $10,000 for most borrowers, and up to $20,000 for Pell Grant recipients — a policy that’s now being challenged in the courts.
IS THERE A CHANCE THE RATE HIKES WILL BE REVERSED?
It looks increasingly unlikely that rates will come down anytime soon. On Wednesday, the Fed signaled that it will raise its rate as high as roughly 5.1% early next year — and keep it there for the rest of 2023.
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AP Business Writers Christopher Rugaber in Washington, Tom Krisher in Detroit and Damian Troise and Ken Sweet in New York contributed to this report.
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The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
Transport providers, businesses and governments on Saturday are rushing to get all their systems back online after long disruptions following a widespread technology outage.
The biggest continuing effect has been on air travel. Carriers canceled thousands of flights on Friday and now have many of their planes and crews in the wrong place, while airports facing continued problems with checking in and security.
At the heart of the massive disruption is CrowdStrike, a cybersecurity firm that provides software to scores of companies worldwide. The company says the problem occurred when it deployed a faulty update to computers running Microsoft Windows, noting that the issue behind the outage was not a security incident or cyberattack.
Here’s the Latest:
Microsoft: 8.5 million devices on its Windows system were affected
Microsoft says 8.5 million devices running its Windows operating system were affected by a faulty cybersecurity update Friday that led to worldwide disruptions.
A Saturday blog post from Microsoft was the first estimate of the scope of the disruptions caused by cybersecurity firm CrowdStrike’s software update.
“We currently estimate that CrowdStrike’s update affected 8.5 million Windows devices, or less than one percent of all Windows machines,” said the blog post from Microsoft cybersecurity executive David Weston.
“While the percentage was small, the broad economic and societal impacts reflect the use of CrowdStrike by enterprises that run many critical services.”
Weston said such a significant disturbance is rare but “demonstrates the interconnected nature of our broad ecosystem.” Windows is the dominant operating system for personal computers around the world.
Austrian doctors’ group calls for better data protection for patients
In Austria, a leading doctors organization said the global IT outage exposed the vulnerability of health systems reliant on digital systems.
“Yesterday’s incidents underscore how important it is for hospitals to have analogue backups” to safeguard patient care, Harald Mayer, vice president of the Austrian Chamber of Doctors, said in a statement on the organization’s website.
The organization called on governments to impose high standards in patient data protection and security and on health providers to train staff and put systems in place to manage crises.
“Happily, where there were problems, these were kept small and short-lived and many areas of care were unaffected” in Austria, Mayer said.
Germany warns of scams after major IT outage
BERLIN — The German government’s IT security agency says numerous companies are still struggling with the consequences of a far-reaching technology outage.
“Many business processes and procedures have been disturbed by the breakdown of computer systems,” the BSI agency said on its website.
But the agency also said Saturday that many impacted areas have returned to normal.
It warned that cybercriminals were trying to take advantage of the situation through phishing, fake websites and other scams and that “unofficial” software code was in circulation.
The agency said it was not yet clear how faulty code ended up in the CrowdStrike software update blamed for triggering the outage.
European airports appear to be close to normal
LONDON — Europe’s busiest airport, Heathrow, said it is busy but operating normally on Saturday. The airport said in a statement that “all systems are back up and running and passengers are getting on with their journeys smoothly.“
Some 167 flights scheduled to depart from U.K. airports on Friday were canceled, while 171 flights due to land were axed.
Meanwhile, flights at Berlin Airport were departing on or close to schedule, German news agency dpa reported, citing an airport spokesman.
Nineteen flights took off in the early hours of Saturday after authorities exempted them from the usual ban on night flights.
On Friday, 150 of the 552 scheduled inbound and outbound flights at the airport were canceled over the IT outage, disrupting the plans of thousands of passengers at the start of the summer vacation season in the German capital.
German hospital slowly restoring its systems after widespread cancellations
BERLIN — The Schleswig-Holstein University Hospital in northern Germany, which on Friday canceled all elective surgery because of the global IT outage, said Saturday that it was gradually restoring its systems.
In a statement on its website, it forecast that operations at its two branches in Kiel and Luebeck would return to normal by Monday and that “elective surgery can take place as planned and our ambulances can return to service.”
Britain’s transport system still trying to get back on track
LONDON — Britain’s travel and transport industries are struggling to get back on schedule after the global security outage with airline passengers facing cancellations and delays on the first day of summer holidays for many school pupils.
Gatwick Airport said “a majority” of scheduled flights were expected to take off. Manchester Airport said passengers were being checked in manually and there could be last-minute cancellations.
The Port of Dover said it was seeing an influx of displaced air passengers, with hourlong waits to enter the port to catch ferries to France.
Meanwhile, Britain’s National Cyber Security Center warned people and businesses to be on the lookout for phishing attempts as “opportunistic malicious actors” try to take advantage of the outage.
The National Cyber Security Center’s former head, Ciaran Martin, said the worst of the crisis was over, “because the nature of the crisis is that it went very wrong very quickly. It was spotted quite quickly and essentially it was turned off.”
He told Sky News that some businesses would be able to get back to normal very quickly, but for sectors such as aviation it would take longer.
“If you’re in aviation, you’ve got people, planes and staffs all stranded in the wrong place… So we are looking at days. I’d be surprised if we’re looking at weeks.”
Germany airline expects most of its flights to run normally
BERLIN — Eurowings, a budget subsidiary of Lufthansa, said it expected to return to “largely scheduled” flight operations on Saturday.
On Friday, the global IT outage had forced the airline to cancel about 20% of its flights, mostly on domestic routes. Passengers were asked to take trains instead.
“Online check-in, check-in at the airport, boarding processes, booking and rebooking flights are all possible again,” the airline said Saturday on X. “However, due to the considerable extent of the global IT disruption there may still be isolated disruptions” for passengers, it said.
Delta Air Lines and its regional affiliates have canceled hundreds of flights
DALLAS — Delta Air Lines and its regional affiliates canceled more than a quarter of their schedule on the East Coast by midafternoon Friday, aviation data provider Cirium said.
More than 1,100 flights for Delta and its affiliates have been canceled.
United and United Express had canceled more than 500 flights, or 12% of their schedule, and American Airlines’ network had canceled 450 flights, 7.5% of its schedule.
Southwest and Alaska do not use the CrowdStrike software that led to the global internet outages and had canceled fewer than a half-dozen flights each.
Portland, Oregon, mayor declares an emergency over the outage
PORTLAND, Ore. — Mayor Ted Wheeler declared an emergency Friday after more than half of the city’s computer systems were affected by the global internet outage.
Wheeler said during a news conference that while emergency services calls weren’t interrupted, dispatchers were having to manually track 911 calls with pen and paper for a few hours. He said 266 of the city’s 487 computer systems were affected.
Border crossings into the US are delayed
SAN DIEGO — People seeking to enter the U.S. from both the north and the south found that the border crossings were delayed by the internet outage.
The San Ysidro Port of Entry was gridlocked Friday morning with pedestrians waiting three hours to cross, according to the San Diego Union-Tribune.
Even cars with people approved for a U.S. Customers and Border Protection “Trusted Traveler” program for low-risk passengers waited up to 90 minutes. The program, known as SENTRI, moves passengers more quickly through customs and passport control if they make an appointment for an interview and submit to a background check to travel through customs and passport control more quickly when they arrive in the U.S.
Meanwhile, at the U.S.-Canada border, Windsor Police reported long delays at the crossings at the Ambassador Bridge and the Detroit-Windsor tunnel.
U.S. filings for unemployment benefits rose again last week and appear to be settling consistently at a slightly higher though still healthy level that the Federal Reserve has been aiming for.
Jobless claims for the week ending July 13 rose by 20,000 to 243,000 from 223,000 the previous week, the Labor Department reported Thursday. It’s the eighth straight week claims came in above 220,000. Before that stretch, claims had been below that number in all but three weeks so far in 2024.
Weekly unemployment claims are widely considered as representative of layoffs.
The Federal Reserve raised its benchmark borrowing rate 11 times beginning in March of 2022 in an attempt to extinguish the four-decade high inflation that shook the economy after it rebounded from the COVID-19 recession of 2020. The Fed’s intention was to cool off a red-hot labor market and slow wage growth, which it says can fuel inflation.
AP AUDIO: More Americans apply for jobless benefits as layoffs settle at higher levels in recent weeks
AP correspondent Shelley Adler reports filings for unemployment benefits have risen.
“The Fed asked to see more evidence of a cooling economy, and for the most part, they’ve gotten it,” said Chris Larkin, managing director of trading and investing at E-Trade. “Add today’s weekly jobless claims to the list of rate-cut-friendly data points.”
Few analysts expect the Fed to cut rates at its meeting later this month, however most are betting on a cut in September.
The total number of Americans collecting unemployment benefits rose after declining last week for the first time in 10 weeks. About 1.87 million Americans were collecting jobless benefits for the week of July 6, around 20,000 more than the previous week. That’s the most since November of 2021.
Continuing claims have been on the rise in recent months, suggesting that some Americans receiving unemployment benefits are finding it more challenging to land jobs.
And there have been job cuts in a range of sectors in recent months, from the agricultural manufacturer Deere, to media outlets like CNN, and elsewhere.
The four-week average of claims, which evens out some of the week-to-week volatility, rose by 1,000 to 234,750.
Strong consumer demand and a resilient labor market has helped to avert a recession that many economists forecast during the extended flurry of rate hikes. As inflation continues to ease, the Fed’s goal of a soft-landing — bringing down inflation without causing a recession and mass layoffs — appears within reach.
While the labor market remains historically healthy, recent government data suggest some weakening.
The unemployment rate ticked up to 4.1% in June, despite the fact that America’s employers added 206,000 jobs.
Job postings in May rose slightly to 8.1 million, however, April’s figure was revised lower to 7.9 million, the first reading below 8 million since February 2021.
Darden Restaurants is adding Tex-Mex to the menu.
The parent company of Olive Garden, LongHorn Steakhouse, Yard House and other chains, said Wednesday it’s buying Chuy’s for approximately $605 million.
Darden said it will acquire all outstanding shares of Chuy’s for $37.50 per share. Those shares closed at $25.27 apiece on Wednesday, then soared past $37 in after-hours trading once the deal was announced. Darden shares fell 1% in after-hours trading.
Darden said the boards of Darden and Chuy’s have unanimously approved the acquisition. The deal is expected to close later this year, if it’s approved by Chuy’s shareholders.
Chuy’s Holdings Inc. was founded in Austin, Texas, in 1982. It now operates 101 restaurants in 15 states and has 7,400 employees. It’s known for its eclectic decor and fresh food, including handmade tortillas and sauces.
Like Darden, Chuy’s owns and operates all of its restaurants. Darden President and CEO Rick Cardenas said Chuy’s is a differentiated brand with strong growth potential that will expand Darden’s dining options.
Darden, based in Orlando, Florida, operates more than 1,900 restaurants and has 190,000 employees. It also owns Ruth’s Chris Steak House, Cheddar’s Scratch Kitchen, The Capital Grille, Seasons 52, Eddie V’s and Bahama Breeze.
“Based on our criteria for adding a brand to the Darden portfolio, we believe Chuy’s is an excellent fit that supports our winning strategy,” Cardenas said in a statement.
Chuy’s Chairman, CEO and President Steven Hislop said the acquisition will accelerate Chuy’s business goals and expand the brand to more communities.
The deal comes as both restaurant companies have been struggling with a downturn in customer traffic due to consumer concerns about inflation.
In Darden’s fiscal fourth quarter, which ended May 26, same-store sales — or sales at restaurants open at least a year — were flat compared to the prior year. Chuy’s same-store sales were down 5% in its first quarter, which ended March 31.
Investment bank Jefferies downgraded shares for both restaurant chains earlier this month, saying they’re being squeezed by price promotions at fast-food chains like McDonald’s as well as at casual dining peers like Chili’s and Applebee’s.
