The Fed plans to shrink its balance sheet by $95 billion a month, but what could that mean for your wallet?
The Fed plans to shrink its balance sheet by  billion a month, but what could that mean for your wallet?

The Federal Reserve released its minutes, which show it will continue to shrink its balance sheet and raise interest rates. (iStock)

the latest minutes Data from the Federal Reserve’s March meeting released last week indicated that the central bank planned to further reduce its bond holdings while continuing to raise interest rates to combat rising inflation.

The Fed voted at that meeting to raise the federal funds rate by 25 basis points, to a target range of 0.25% to 0.5%. The move marked the first interest rate hike since 2018, and the Fed also signaled that more rate hikes are coming soon. The Federal Open Market Committee (FOMC) minutes also revealed that the Federal Reserve is considering trimming its balance sheet — the amount of stimulus it puts into the economy — by $95 billion a month.

“Participants generally agreed that monthly caps of about $60 billion for Treasury securities and about $35 billion for agency MBS would likely be appropriate,” the Fed minutes said. . “Participants also generally agreed that caps could be phased in over a period of three months or slightly longer if market conditions warrant.”

If the Fed reduced its balance sheet, it would cause interest rates to rise. If you want to take advantage of interest rates before they rise further, consider refinancing your private student loans to lower your monthly payment. Visit Credible to find your personalized interest rate without affecting your credit score.

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Interest rates will continue to rise, says FOMC

Interest rates are rising, but the Federal Reserve plans to continue raising rates through 2022 and 2023, according to the minutes of the meeting. The FOMC explained that to fight inflation, such rate hikes would still be necessary.

In February, inflation hit a new 40-year high, rising 7.9%. The rate marked a third straight increase and also topped records set each of the previous two months. Treasury Secretary Janet Yellen told CNBC in a March 10 interview that Americans would “probably” see “uncomfortably high” inflation numbers during 2022.

“The committee seeks to achieve a maximum employment and inflation rate of 2% over the long term,” the Fed’s minutes said. “With an appropriate firming of the monetary policy stance, the committee expects inflation to return to its 2% target and the labor market to remain strong. In support of these objectives, the committee has decided to raise the target range for the federal funds rate to 0.25% to 0.5% and anticipates that continued increases in the target range will be appropriate.”

The direction of interest rates on mortgages, student loans, personal loans and others is determined using the federal funds rate.

As the federal funds rate rises, it will continue to push interest rates up at a faster pace. The average 30-year mortgage rate, for example, is fast approaching the 5% mark. Homeowners looking to lower their monthly payments might consider refinancing their mortgage. Credible can help you compare lenders and find the best refinance rate for your financial situation.

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Russian invasion of Ukraine creates great economic uncertainty: Fed

At its March meeting, Fed officials noted positive economic growth despite pressures from high inflation. However, there was one factor that participants felt was creating high levels of uncertainty for the US economy: Russia’s invasion of Ukraine.

“Participants noted that indicators of economic activity and employment continued to strengthen,” the minutes said. “Job creation has been strong in recent months and the unemployment rate has fallen significantly. Inflation has remained high, reflecting persistent supply and demand imbalances, rising energy prices and broader price pressures.With an appropriate firming of the monetary policy stance, participants expected inflation to gradually return to the 2% target set by the committee and the labor market will remain strong.

“The participants recognized that Russia’s invasion of Ukraine was causing enormous human and economic hardship to the Ukrainian people,” the minutes continued. “They judged the implications of the war for the US economy to be highly uncertain, but in the short term the invasion and related events were likely to create significant additional upward pressure on inflation and could weigh on the economic activity.”

As the Fed continues to battle soaring inflation, consumers can take advantage of current interest rates before they rise even further by visiting Credible. From there, they can now get great rates on mortgages, personal loans and more.

You have a financial question, but you don’t know who to contact? Email the Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.

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