We knew it was coming, and now we know when.
The Fed Vice Chair Richard Clarida announced last week that the first post Covid interest rate hike is set to hit in early 2023.
"I wasn't surprised" said Lone Star College economist Hank Lewis, "We have been having a lot of core inflation for over a year, and they are looking at possibly having a 5% rate of inflation by the end of this year which is relatively high for the U.S. I'm sort of surprised that they didn't act sooner."
So what does a rise in interest rates mean for you and me? "When interest rates rise, it makes it more expensive to borrow money" Lewis told KTRH, "People spend less using credit cards, people borrow less to buy news houses or new cars, and the end result is the higher interest rates discourage borrowing or spending. If the Federal reserve causes spending to drop too much, we see a rise in unemployment which is not desirable."
Our economy was very desirable 8 months ago, despite the pandemic. But so much damage has been done by the Biden administration, the Fed has to try and slow down the soaring inflation. "The danger is that the Federal reserve may have to give a poison pill to the economy" Lewis said, "You have to cause a recession to get the inflation under control."
That recession will have a major impact on everything, including the red hot real estate market. "If mortgage interest rates rise, it could cool things off" Lewis noted, "In some ways that could be a good thing, because a lot of people find that house prices are way too high, but it could also slow down activity in the industry which might not be so good."
Bottom line, the warning for 2023 has been given. Lewis says now is the time to refinance if you need to, pay down any high interest debt, and even get a new auto loan. If you can find a car with the right chip.