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The Effect of Fed Funds Rate Hikes on Consumer Borrowing Costs

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The Effect of Fed Funds Rate Hikes on Consumer Borrowing Costs

Federal Reserve Bank of New York,

5 Minuten Lesezeit
5 Take-aways
Audio & Text

Was ist drin?

Should you rush to buy a house, now that the Federal Reserve is raising interest rates?

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Editorial Rating

7

Recommendation

Money has been so cheap for so long that it is easy to forget that this new normal is quite abnormal in economic history. But what will happen now that rates have finally begun their long-anticipated ascent? Federal Reserve Bank of New York economists Nina Boyarchenko, Sooji Kim and Matthew Plosser chart the impacts of rising interest rates on mortgages and come up with some likely answers. getAbstract recommends this short but sharp investigation into how monetary policy affects consumers and the real economy to executives and policy makers.

Summary

An important effect of higher interest rates is their impact on consumer spending, since rising rates could temper consumption. However, the federal funds rate, which the Federal Reserve targets, and retail loan rates, such as banks’ competitive home mortgage rates, are not directly linked. A study of banks’ listed mortgage rates and of Fed interest rate changes from January 2000 through September 2013 reveals patterns in the relationship between macroeconomic events and interest costs:

  • A change in the federal funds rate has a stronger impact on shorter-term loans than on longer-term...

About the Authors

Nina Boyarchenko and Matthew Plosser are economists at the Federal Reserve Bank of New York, where Sooji Kim is a senior research analyst.

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