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Finance News

Rising Interest Rates Take Toll on Americans’ Wallets Amidst Inflation Concerns

In the ongoing battle to combat surging inflation, the Federal Reserve has implemented a series of 10 interest rate hikes since March 2022. However, the move has left many Americans facing financial strain, as reported by the Allianz Life Insurance Company of North America.

According to Allianz, a staggering 61% of Americans revealed that they have felt the impact of rising interest rates in the past year. The consequences of these hikes are far-reaching, making mortgages, vehicle financing, and other financial transactions more expensive for consumers. Moreover, credit card holders are feeling the pinch, with rates soaring above 20%, resulting in a record collective debt of over $17 trillion in the first quarter of 2023, with credit card debt alone reaching nearly $1 trillion.

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Federal Reserve Contemplates Further Rate Increases to Tackle Inflation

Following the latest meeting in June, Federal Reserve Chair Jerome Powell expressed the possibility of additional interest rate hikes to rein in inflation and achieve the target of 2%. The decision to pause interest rate hikes in June came as a response to signs of cooling inflation and a rise in unemployment. However, financial experts, including Jim Baird, Chief Investment Officer at Plante Moran Financial Advisors, suggest that more evidence is needed to convince policymakers that inflation has been adequately addressed.

In June, inflation did experience a slowdown, reaching a two-year low at 3%, as reported by the Bureau of Labor Statistics. Nevertheless, Morning Consult Chief Economist John Leer warns that the Federal Reserve’s focus lies primarily on the trend in core PCE inflation, which has remained consistently elevated over the past six months. As a result, a singular encouraging data point may not be enough to sway the Fed’s current approach, particularly as it aims to maintain credibility with financial markets.

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Recession Concerns Loom Amidst Economic Indicators

The relentless barrage of interest rate hikes has fueled worries of an impending recession among more than half (64%) of Americans, according to the Allianz survey. This marked an increase from 57% in the first quarter, with Baby Boomers expressing higher levels of concern compared to millennials.

While there is no official definition of a recession, some economists define it as an economic downturn with two consecutive quarters of GDP loss. However, recent GDP reports paint a different picture, with a 2% increase in the first quarter of 2023 and a 2.6% increase in the final quarter of 2022, as stated by the Bureau of Economic Analysis.

Despite the optimistic GDP figures, leading indicators are pointing to the potential for a slowdown in the economy. Jim Baird emphasizes that several factors may contribute to an increased probability of recession, coinciding with the Federal Reserve’s aggressive rate hike strategy in their pursuit to tame inflation. Moreover, experts at The Conference Board have cautioned that the global economy is also facing downward pressure due to high inflation, tighter monetary policies, and economic scarring caused by the pandemic.

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As the Federal Reserve continues its efforts to combat inflation through interest rate hikes, the impact on everyday Americans’ wallets is becoming increasingly evident. Rising interest rates have led to heightened financial concerns, especially with soaring credit card debt and growing worries of an impending recession. While the Fed contemplates further rate increases, experts are closely monitoring economic indicators to gauge the potential for future economic downturns. In the meantime, individuals grappling with high-interest debt can explore viable solutions through personal loans at lower interest rates, aiming to ease their financial burden during these challenging times.

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