NORFOLK, Va. - Wednesday, the Federal Reserve raised the interest rate three-quarters of a percentage point. This is the largest hike in nearly three decades.
It affects mostly consumer and business loans.
The Central Bank is ramping up its drive to tighten credit and slow inflation. The Federal Reserve is planning two more hikes in 2023.
News 3 is looking into the impacts of inflation and rising rates, as well as economists predicting a possible recession.
It's been hard for Max Sonnino, a Virginia Beach single father working in hospitality and supporting his 11-year-old son, Emmanuel.
“There's been a lot of times where I've had to make a choice where I either go to work or pay bills,” Sonnino told News 3. “My bills have been late, just because I've had to put gas in the car so that I could get to work.”
“The big thing, right now, is to essentially prepare for an economic storm,” Old Dominion University Economics Professor Bob McNab said.
McNab added that the current economic environment is muddled at best.
“We have positive news out there in terms of demand for workers, but we're also facing these global economic headwinds in terms of an energy price shock, in terms of interest rate increases, in terms of supply chain constraints,” he said.
News 3 asked McNab about what the chances are of the U.S. going into a recession eventually.
“I would say that we're more than a one in three chance right now over the next 12 months,” he answered.
“[It] scares me. [It] scares me terribly,” Sonnino said about the possibility of a recession. “With my son, I want to be able to provide for him.”
McNab also noted rising interest rates lead to rising mortgage rates.
A new report by LendingTree looking at mortgage rates states the group found rising annual percentage rates (APRs) could potentially cost new borrowers across the United States hundreds of dollars a month, or more than $100,000 over the lifetime of loans.
“Interest rates today, yes, they're skyrocketing, but you're comparing them to the past 2 years, when we were at record low interest rates,” Carly Wimer, VP of Mortgage Lending for Guaranteed Rate told News 3.
Wimer told News 3 foot traffic for prospective homebuyers has gone down lately.
However, she said it's important for you to stay calm and talk with experts about your options.
“Their interest rate today does not have to be their interest rate for the entire 30 years, 15 years, 10-year loan term,” she said. “Do what's affordable for you because rent isn't getting any cheaper. Home prices aren't getting any cheaper.”
Meanwhile, McNab said it's important to have an emergency fund ready to go for whatever may lie ahead.
“Having $1,000 on hand, and then you really need to start focusing on liquidity. Can you have enough cash on hand that, if your job is disrupted, that if there are portends of a recession, that you can switch jobs. You can manage a spell of unemployment.”
As for Sonnino, he's staying positive while saving for the future.
“I have a feeling that we'll need it in the next couple of months,” he said.
McNab believes what would tip us into a recession is another large economic shock.
This would be factors such as real estate prices contract significantly because of interest rate hikes, stock markets continue to drop, or another oil price or geopolitical shock.
He added the recession wouldn't be as severe as the great recession of the late 2000's.