Experts say the conflict could bring higher interest rates as the Federal Reserve tries to combat inflation.
Americans returned to their pre-pandemic spending habits, but the war in Eastern Europe could change that.
When personal finance site WalletHub surveyed people about their spending habits, about half of respondents said they started using their credit cards more in 2022. Most are feeling anxious since inflation rates are the highest they’ve been in decades and the war in Ukraine has led to rapidly rising gas prices.
Now, Americans are reconsidering the financial freedoms they enjoyed at the beginning of the year.
“The transportation and travel industries will most likely be hit the hardest as a result of the oil price volatility,” Jill Gonzalez, a WalletHub analyst, told Debt.com. “Higher energy prices will also impact consumer spending.”
The Federal Reserve has a meeting on March 16 and they could decide to raise interest rates.
“Higher interest rates could slow post-pandemic recovery. However, because the labor market is strong right now, the impact of a Fed rate hike might be minimal on the overall economy,” Gonzalez said. “Plus, a rate hike would curb spending and consequently, inflation.”
Even though the increase in gas and grocery prices has been swift and obvious, some Americans are more scared of rising interest. Some experts say it’s about time for the Fed to raise interest rates and war won’t change that.
Christine Sauer, an economics professor at the University of New Mexico, told WalletHub that before the war began, she expected to see between three and five smaller interest rate hikes in 2022. But the conflict in Ukraine has made economics a lot more unpredictable.
“There is so much uncertainty right now regarding Ukraine and future sanctions/actions by the U.S. and its allies,” Sauer said. “I think we need to wait and see how the U.S. economy fares over the next few weeks and months.”
Oscar Brookins, an economics professor at Northeastern University, has his own theory.
“The raging war will certainly exacerbate inflation because the energy sector will be under increasing pressure as Russia, essentially an oil and gas economy, prosecutes its war and oil and gas supplies are disrupted,” Brookins told WalletHub.
He sees the interest rate rising a total of 75 basis points this year if the war continues – meaning that if a rate starts at 5 percent, it’ll become 5.75 percent.
Higher interest rates could slow down inflation, but 55 percent of Americans see it as a bad thing for their wallets. People with good credit are much more likely than people with bad credit to see the positive effects of higher interest rates can have on the economy.
“An increase in interest rates from the Federal Reserve will hurt Americans who are already in debt. If the Fed raises interest rates, the interest rates consumers pay on loans will also rise, as will the overall cost of borrowing,” Gonzalez said. “Mortgages will also be more expensive for new borrowers, and the average APR on auto loans will be higher as well.”
It’s possible that the Fed will approve a 25-basis point increase this week which would increase credit card rates and cost consumers an extra $1.6 billion this year.
“Americans are worried about the cost of their credit card debt increasing due to interest rate hikes by the Federal Reserve,” Gonzalez said in a press release. “People are having trouble making ends meet as-is, and they know rising rates will only increase the cost of their debt.”
Published by Debt.com, LLC