Federal Reserve interest rate increases can have various effects on everyday Americans, including those with low income. Here are some of the key ways higher interest rates can impact people's lives:
- Borrowing costs: When the Federal Reserve raises interest rates, the cost of borrowing money usually increases. Higher interest rates can make it more expensive for people to obtain loans, such as mortgages, auto loans, or personal loans. This can be especially burdensome for low-income individuals who may already struggle to afford monthly loan payments.
- Credit card debt: Higher interest rates can also lead to increased interest charges on credit card balances, making it more difficult for people, particularly those with low income, to pay off their credit card debt.
- Savings and investments: Higher interest rates can potentially lead to better returns on savings accounts and other interest-bearing investments. However, low-income individuals may not have significant savings or investments to benefit from these increased returns.
- Inflation: The Federal Reserve may raise interest rates to help control inflation. While this can be beneficial in the long run, higher interest rates can sometimes slow down economic growth, leading to reduced job opportunities or wage growth. This may disproportionately affect low-income individuals who might have fewer employment options and lower wage growth potential.
- Affordable housing: Rising interest rates can also impact the housing market. Higher mortgage rates can reduce the affordability of homes, making it more difficult for low-income families to purchase a house. Additionally, higher interest rates may lead to reduced investment in affordable housing projects, further exacerbating the issue.
- Social services and government support: Increased interest rates can raise the cost of borrowing for the government, which may result in reduced spending on social services and other programs that benefit low-income individuals.
While higher interest rates can impact Americans across various income levels, the effects can be more pronounced for those with low income due to their limited financial resources and reduced capacity to absorb increased costs.
