Consumers Are Suffering From the Fed’s High Interest Rates

As the Federal Reserve's war on inflation shows no signs of slowing, high interest rates are continuing to hurt American consumers.

Last week, the Fed said that further interest-rate hikes may be necessary to drive down inflation, which is running well above its target rate of 2%. The central bank has raised the Federal Funds rate -- which affects borrowing costs such as mortgages or credit cards -- 11 times since March 2022.

Americans looking to take out loans to help purchase homes or cars are stuck facing high costs.

New 30-year fixed-rate mortgages are priced at more than 7% on average, the highest since April 2002, and at least one analyst has said they could grow to as much as 8% in the future. Just two years ago, mortgages carried a rate of about 3%, according to Freddie Mac.

Meanwhile, prices on both used and new vehicles have ballooned.

The average price for a new vehicle hit $48,334 in July, up nearly $200 on average from last year, according to Cox Automotive. There's just one new model, the Mitsubishi Mirage sedan, available in the U.S. for under $20,000, compared to the dozens available for that price just five years ago. Used vehicles went for about $27,000 on average in July, around $2,000 higher than the average transaction price in July 2019, according to Cox.

Purchasing a new vehicle or home is “completely unaffordable for the typical American household because you’re mixing the higher borrowing costs with the high prices,” Mark Zandi, chief economist at Moody’s Analytics, told The Wall Street Journal.

In August, the typical American consumer would need to spend some 42 weeks of income to purchase a new vehicle, according to Cox. But as the United Auto Workers strike continues, it's expected that vehicle prices will increase into October.

Daniel Waddell began looking for a home in St. Paul, Minn., in January, according to the Journal. Waddell and his wife eventually bought a three-bedroom, one-bathroom home in the spring after making an offer over the asking price.

The 25-year-old consultant's mortgage rate is 6.5%, leaving the couple to pay $2,600 in mortgage payments each month, according to the Journal. Waddell told the Journal he planned to replace his car, which he's had since he began college, but he now wants to put it off as long as possible.

“Rates are obscenely high and it doesn’t seem like they’re going down anytime soon,” Waddell told the Journal.