On The Money — Here’s how higher Fed interest rates hit your wallet
The Federal Reserve is hiking interest rates and we break down what it means for you. We’ll also look at growing pessimism among CEOs and resistance to lifting the gas tax.
But first, it’s going to take a little longer for nationwide 5G to kick in.
Welcome to On The Money, your nightly guide to everything affecting your bills, bank account and bottom line. For The Hill, we’re Sylvan Lane, Aris Folley and Karl Evers-Hillstrom. Someone forward you this newsletter? Subscribe here.
Five ways interest rate hikes will affect Americans
The Federal Reserve Bank announced a 75 basis point interest rate hike on Wednesday, a 50 percent greater increase than the central bank had initially signaled it was going to make for June.
The move comes after inflation hit a new, 40-year high last week, with consumer prices reaching an 8.6 percent mantel over where they were a year ago.
Here are just a few ways that an environment of increasing interest rates will affect Americans’ wallets and the economy:
Mortgage, car and credit card payments are going to increase: The federal funds rate sets the rate at which banks and credit unions can lend money to each other as they determine their need for capital to make investments across the economy. Banks that borrow money at the federal funds rate then need to charge a comparable rate to the people and institutions that borrow money from them. So an increase in the funds rate translates down to higher rates in credit markets, mortgage markets and any industry that relies on financing plans to make payments.
Stock markets are falling and seeing dramatic swings in prices: Those increased prices that consumers are paying mean that people tend to rein in their spending, which brings down the demand for goods and services. The consequence for companies is diminished earnings, which means investors become less willing to pay for ownership shares, and this causes stock prices to fall.
It’s going to be harder to find a job: Price increases that shrink demand also have the effect of forcing companies to cut costs, and one of the first places they look to do that is in the labor force. The housing market provides a clear example of this process, according to Desmond Lachman, an economist with the American Enterprise Institute (AEI), a right-leaning Washington think tank.
The context: Fed watchers predict that the bank’s benchmark federal funds rate will continue to rise throughout the year, perhaps at a quicker pace than originally expected if higher prices don’t go down.
Even with the rate hike, interest rates will still only be around 1.6 percent, close to all-time lows.
Here are the other ways the hikes could hit your pocket from The Hill’s Tobias Burns.
STOCKS CLOSE MIXED AS S&P SUFFERS WORST WEEK SINCE MARCH 2020
The stock market closed with mixed gains Friday to close out a brutal week for the market and the worst weekly loss for the S&P 500 index since March 2020.
The S&P ended Friday with a gain of 0.2 percent on the day but down nearly 4.3 percent on the week.
The Nasdaq composite rose 1.4 percent to end with a weekly loss of 1.7 percent, and Dow Jones Industrial Average fell 38 points to close the week with a loss of 4 percent.
The Dow also closed below 30,000 points Thursday for the first time since late 2020.
Stocks whipsawed throughout the week in anticipation of and reaction to the Federal Reserve’s first 0.75 percentage point interest rate hike since 1994.
LEADING THE DAY
More than 60 percent of CEOs globally say they expect a recession: survey
More than 60 percent of CEOs globally said that they expect a recession before the end of 2023 or earlier, according to a new survey.
The C-Suite Outlook midyear survey published Friday found that 15 percent of CEOs already believe there is a recession, with another 43 percent saying there will be a recession by the end of 2022.
The individuals surveyed cited “historically high energy prices, continuing supply chain disruptions, heightened geopolitical risks, and eroding consumer confidence” —and more specifically, lockdowns in China and the knock-on effect from the Ukraine war — which they say is putting downward pressure on growth.
This is also leading to a significant drop in CEO confidence across the globe, the survey found. According to the survey, the war in Ukraine has resulted in a new “inflection point in geopolitics” and the political economy.
It found that the war and its impacts on inflation, economic growth and a potential reshuffling of global alliances will demand innovative solutions in the long term.
The CEOs and other C-suite executives also cited three reasons for further inflation: energy price volatility, higher costs for scarce inputs and the ripple effect on global supply chains.
However, more than half of responding CEOs said they favored passing higher input costs onto consumers while looking to diminish the impact of inflation. About 47 percent said they would cut costs to mitigate the impact of inflation.
The Hill’s Sarakshi Rai has more on this here.
‘UNINTENDED CONSEQUENCES’
Democrat to Biden: Don’t suspend gas tax
Rep. Earl Blumenauer (D-Ore.) asked President Biden to oppose a suspension of the federal gas tax in a letter Thursday, warning of “severe unintended consequences” for infrastructure.
Biden is coming under pressure from other Democrats to embrace a gas tax holiday, and The Hill reported this week that the idea is gaining steam.
But Blumenauer cited a market analysis by the Transportation Investment Advocacy Center indicating that over the past decade, only about 18 percent of state gas tax cuts have been passed down to consumers, with the bulk of the changes in revenue returning to oil and gas companies themselves.
“While there is undoubtedly a need to provide American consumers relief from spiking costs, there is no guarantee a gas tax suspension would reduce prices at the pump or stem the broader inflation affecting the global economy, and it may only increase oil companies’ bottom lines,” Blumenauer wrote.
The Hill’s Zack Budryk explains here.
DOGE EAT DOGE WORLD
Crypto investor sues Elon Musk for $258B over dogecoin ‘pyramid scheme’
A cryptocurrency investor has sued Elon Musk for $258 billion, saying the Tesla co-founder ran a pyramid scheme via dogecoin.
The lawsuit, filed by plaintiff Keith Johnson in New York, has accused Musk and his companies, Tesla and Space X, of running a “pyramid scheme” to inflate the price of the cryptocurrency.
The lawsuit added that “defendants falsely and deceptively claim that dogecoin is a legitimate investment when it has no value at all.”
According to the lawsuit, “since defendant Musk and his corporations Space X and Tesla, Inc. began purchasing, developing, investing, promoting, supporting and operating dogecoin in 2019, plaintiff and the class have lost approximately $86 billion” in what it called a “crypto pyramid scheme.”
The Hill’s Sarakshi Rai has more here.
Good to Know
TikTok announced Friday that it has moved its data on users located in the United States to Oracle’s cloud platform, an attempt to assuage concerns about Chinese government access to American data.
Backups of U.S. user data will be stored in TikTok’s own servers in Virginia and Singapore for the time being before ultimately being deleted in the switch to Oracle’s platform.
Here’s what else we have our eye on:
AP: “U.S. regulators on Friday authorized the first COVID-19 shots for infants and preschoolers, paving the way for vaccinations to begin next week.”
AT&T and Verizon have agreed to delay the deployment of some of their 5G services until July 2023, the Federal Aviation Administration (FAA) announced Friday.
The Department of Justice (DOJ) announced it has dismantled a Russian network of hacked internet-connected devices in a coordinated effort with foreign counterparts to crack down on malicious cyber activities.
ON TAP NEXT WEEK
Wednesday
The Senate Appropriations Subcommittee on Commerce, Science, Justice, and Related Agencies holds a hearing to examine the Office of the U.S. Trade Representative’s fiscal year 2023 budget request at 9:30 a.m.
The Senate Committee on Banking, Housing, and Urban Affairs holds a hearing entitled “The Semiannual Monetary Policy Report to Congress,” featuring testimony from Federal Reserve Chair Jerome Powell at 9:30 a.m.
The Senate Committee on Commerce, Science, and Transportation holds an executive session to consider pending bills and nominations at 10:00 a.m.
The House Financial Services Committee holds a markup to consider pending legislative items at 10:00 a.m.
The House Homeland Security Subcommittee on Cybersecurity, Infrastructure Protection, and Innovation holds a hearing entitled “Securing the Future: Harnessing the Potential of Emerging Technologies while Mitigating Security Risks” at 2:30 p.m.
The House Appropriations Subcommittee on Commerce, Justice, Science and Related Agencies holds a markup of its fiscal year 2023 funding bill at 7:00 p.m.
Thursday
The House Financial Services Committee holds a hearing entitled “Monetary Policy and the State of the Economy,” featuring testimony from Federal Reserve Chair Jerome Powell at 10:00 a.m.
The House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet holds a hearing entitled “The Patent Trial and Appeal Board After 10 Years: Impact on Innovation and Small Businesses” at 10:00 a.m.
The Senate Committee on Banking, Housing, and Urban Affairs holds a hearing entitled “Reauthorization of the National Flood Insurance Program: Administration Perspectives” at 10:00 a.m.
The House Small Business Committee holds a hearing entitled “SBA Management Review: Office of Government Contracting and Business Development” at 10:00 a.m.
The House Agriculture Subcommittee on Commodity Exchanges, Energy, and Credit holds a hearing entitled “The Future of Digital Asset Regulation” at 10:30 a.m.
Friday
The House Appropriations Committee holds a markup of the fiscal year 2023 Financial Services and General Government spending bill at 9:00 a.m.
That’s it for today. Thanks for reading and check out The Hill’s Finance page for the latest news and coverage. We’ll see you next week.
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