According to data from Moody's Analytics, the Federal Reserve's recent rate hikes may not have had a significant impact on most Americans. This is because the majority of household debt is locked into fixed rates that were secured before the central bank began raising rates. Only 11.1% of household debt carried a floating rate as of the first quarter of this year, meaning that only a small portion of total household debt was affected by the rate increases. This is a significant decrease from previous years, where the percentage of floating-rate debt was much higher.
Since the Great Recession in 2008, the Federal Reserve has kept interest rates historically low, prompting many Americans to secure fixed-rate loans with lower borrowing costs. This has protected borrowers from the negative effects of rising rates. Most mortgages, auto loans, student loans, and personal loans carry fixed interest rates, shielding borrowers from interest rate increases. According to Equifax data, nearly 70% of mortgages have an interest rate below 4%, and existing borrowers have not seen their monthly mortgage payments change despite the Fed's rate hikes.
While rising rates have not had a significant impact on most US households, they have affected credit card delinquency rates. Higher credit card interest rates could lead to increased delinquencies. However, the overall impact on US households has been relatively limited.
Last week, the Federal Reserve announced a 25-basis-point rate hike, bringing the federal funds rate to the 5.25%-5.50% range. Chairman Jerome Powell stated that the battle against inflation is ongoing, but market expectations suggest that this may be the final rate hike of the year, with expectations of loosening monetary policy in early 2024.
While the rate hike campaign may be ending, individuals with floating-rate loans taken out before the rate hikes began may be facing higher payments. Additionally, some Americans may have chosen not to take out loans due to high interest rates, and access to credit may have diminished for some borrowers.
Overall, the Federal Reserve's rate hikes have had a limited impact on most Americans, as the majority of household debt is locked into fixed rates. However, certain individuals with floating-rate loans and potential new borrowers may be affected by the higher rates.