What the next meeting of the Federal Reserve Board means for personal loans

Image Source: Getty Images

Hint: The borrower may not like your answer.

Inflation has hit consumers hard through 2022. The pace of inflation has slowed in the past few months, but the Federal Reserve is not happy with the status quo.

It’s a mixed bag for consumers. On the one hand, it’s good to see that the Federal Reserve is on a mission to keep inflation down. That alone could ease the strain on consumers’ budgets. Meanwhile, to keep inflation down, the Fed is implementing aggressive interest rate hikes designed to push up borrowing costs for consumers. If this trend continues, the cost of various loan products, from auto loans to personal loans, could skyrocket.

Meanwhile, the Fed will meet on January 31st and February 1st to discuss interest rate policy and more. It could also bring bad news for personal loan borrowers if the Fed decides to raise rates significantly again.

Affordable borrowing options are dwindling

It’s a big misconception that the Federal Reserve is directly in charge of setting consumer borrowing rates, such as mortgage rates and mortgage rates. What the Fed monitors is actually the Federal Funds Rate. This is the rate that banks charge each other for short-term borrowing purposes.

However, when the Fed raises the federal funds rate, it tends to indirectly increase borrowing costs for consumers. So, if the Fed raises rates again this week, personal loans are likely to be more expensive, as are borrowing options such as credit cards.

The problem, of course, is that personal loans are often advertised as an affordable and economical means of borrowing money.But it is during the borrowing rate period is not Totally sky high. And if the Fed raises rates again, even personal loans could become an unattractive borrowing option.

Consumers need to prepare for further rate hikes

The Consumer Price Index, which measures changes in the cost of consumer goods, rose 6.5% on an annual basis in December. This was a notable improvement from his November, when the index recorded a 7.1% annual inflation rise. But overall, the Fed is still far from what it wants to be.

As such, consumers should expect another rate hike this week. Whether or not it will be steep remains to be determined, but in any case the Fed is not finished fighting inflation. I have. That is why, if you need to borrow money, sooner or later you should apply for a personal loan.

The good news is that it is possible to refinance a personal loan, just as it is possible to refinance a mortgage. So consumers who started out with higher rates may eventually lower their rates. However, we may not see consumer interest rates fall for some time, so those in need of a personal loan should really make a move before it becomes financially viable.