I couldn’t help myself. I couldn’t. It just sprang immediately to mind when I heard that Jerome Powell (and his gang of merry accomplices) added seventy-five basis points to the fed rates. I saw the ‘Breaking News’ and McFadden & Whitehead started singing to me. “Ain’t No Stoppin’ Us Now… We’re On the Move!” Is that art imitating life, or something else? I’m not sure. Either way, “Change Is Gonna Come,” just like Sam Cooke sang. Oops, I did it again.
The What
According to a quick Google search, “The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and saving rates they see every day.” In layman’s terms, this is the base rate from which all credit blessings flow. As you know, there is an enormous amount of weight attributed to what the fed does, and its bearing on everything is more than consequential. In our case, the specific focus is on mortgage rates…which ties directly to the ability for homeowners to buy and sell their properties.
The When
Now. I could stop right there, but that wouldn’t do this timing justice. Whether or not you are of the opinion that we’re on the precipice of a recession, you’ve no doubt understood the impression on the market today, and the subsequent sway on your clients (yesterday, today, and tomorrow). Rising fed rates not only hinder the ability to find an affordable mortgage, but they influence things you might consider ancillary, like credit card rates, auto loans, etc. Those are typically impacted – right now – in a negative manner. It can be a waterfall effect. For example, as rates rise, credit card interest follows. And that makes it even more difficult for anyone with credit card debt they can’t currently manage to get a stranglehold on the finance charges that pile up monthly. That leads to higher debt-to-income ratios. And that makes it harder for someone to obtain a mortgage with a ‘lower’ interest rate. To the contrary, anyone with savings in play should see a modest increase in those rates (but most likely not enough to offset a potential mortgage rate increase).
The Conclusion
McFadden and Whitehead gave us what is essentially a very positive song. “Don’t let nothing stand in your way!” they sing. And that’s good advice. The only way to get through any kind of adversity is to walk right down the middle of it. Stay on top of the rate conversation, make sure your clients have access to the best financial information they can obtain (NOTE: that advice should not come from you, but a licensed provider), and understand what this trend means to how you need to run your business for the short- and long-term.
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