Interest rates hikes over the last year have had a negative impact on purchasing power. When interest rates rise, the cost of borrowing money increases. This can make it more expensive for consumers to buy homes, cars, and other big-ticket items. It can also make it more expensive for businesses to invest and expand. As a result, higher interest rates can lead to slower economic growth and lower wages.
Here are some specific examples of how interest rates hikes have impacted purchasing power:
- The average interest rate on a 30-year fixed-rate mortgage has increased from 3.0% in January 2022 to 5.25% in May 2023. This means that a new homebuyer with a $300,000 mortgage will now pay an additional $400 per month in interest payments.
- The average interest rate on a credit card has increased from 16.1% in January 2022 to 19.9% in May 2023. This means that a credit card holder with a $10,000 balance will now pay an additional $199 per month in interest payments.
- The average interest rate on a car loan has increased from 4.7% in January 2022 to 5.5% in May 2023. This means that a new car buyer with a $40,000 loan will now pay an additional $220 per month in interest payments.
Higher interest rates can also lead to lower wages. When businesses have to pay more for borrowing money, they may be less likely to hire new employees or give raises to existing employees. This can lead to a decrease in purchasing power for workers.
Overall, interest rates hikes can have a significant negative impact on purchasing power. When interest rates rise, the cost of borrowing money increases, which can make it more expensive for consumers to buy goods and services and for businesses to invest and expand. As a result, higher interest rates can lead to slower economic growth and lower wages.