The Fed is raising interest rates again

On November 1, 2005 the Federal Reserve Bank [Fed] raised interest rates by a quarter of a percentage point. Outgoing Fed Chairman Alan Greenspan has been raising rates regularly since the summer of 2004, ever since bottoming out at just 1%. Now at 4%, Greenspan is expected to hike rates twice more before leaving office in January 2006. Will higher interest rates stave off inflation? Will incoming chairman continue Greenspan’s incremental upward adjustments or let rates flatten? Speculation abounds, but one thing you can know for sure: you will pay more for many of life’s expenses.

A rate hike by the Fed means you’ll likely be paying more for things including:

credit cards. Credit card companies aren’t known for showing much restraint, and you can bet they’ll keep raising rates except for their best customers. Rates of 12, 15, and even 21% or more recur.

mortgage rates. Fixed-rate mortgage holders are fine, but those with adjustable-rate mortgages pay more. Much more so if they haven’t felt the effects of previous rate hikes and their mortgages are due for an upward adjustment. More money to pay mortgages means less money for disposables.

car loans. If you need a new car and can still find zero percent financing, then grab it. Auto loans, personal loans, home equity loans, home equity lines of credit, loan consolidations will all continue to grow.

Add in high fuel prices and expected increases in medical bills, and Americans are pressured. With the holiday season fast approaching, retailers are having to cut prices to attract shoppers with dwindling cash reserves.

For people who don’t have excessive debt, the Fed’s rate hike will have little or no impact on them. For everyone else, the pinch is on!