Economy - - The Finance Gourmet

What Will Interest Rates Do Now?

January 22, 2024 by Finance Gourmet

It’s January 2024, and nobody expects the Fed to cut interest rates at its January meeting. Interest rates will stay the same until the March meeting, when the only option is to stand pat, or to cut rates. An interest rate hike is off the table under all foreseeable scenarios. What Should I Do About Interest Rates Now? Under these conditions, it is important to understand two concepts. First, some interest rates move only when the Fed cuts or raises interest rates. Other interest rates move with the market. The first kind of interest rates are generally most types of revolving debt such as credit cards, home equity lines of credit, and personal loans. These kinds of credit are almost always tied to the Prime rate. The Prime rate is set banks, and typically moves in lock step with the Federal Reserve Fed Funds Rate. The second category of interest rates moves with the market. When people talk about interest rates and the market, they mean the bond market where all manner of debt trades hands just like stocks in the stock market. Just like stocks, these rates move every day, and just like stocks, more than a little bit …

What Is the Normal Mortgage Interest Rate

November 8, 2023 by Finance Gourmet

With articles and talking finance people constantly talking about mortgage rates, rising mortgage rates, and highest interest rates in 20 years, you might be wondering what the normal mortgage interest rate actually is. There are actually many different types of mortgages. When people talk about mortgages generally, or generically, they are typically talking about the standard 30-year mortgage with a 20% down payment. As it turns out, mortgage rates aren’t as typical as some people might have you believe. The 30-Year Fixed Rate Mortgage Average Chart As someone who has clocked in nearly a half-century here on Earth, the days of 3% and 4% mortgages were crazy town bonkers. To me those interest rates were comically low, and certainly not the normal interest rates for mortgages, but it isn’t that simple. This chart shows the 30-year fixed rate mortgage average in the United States. As someone who became aware of finance around 1990, you can see where I got the idea that 7% and 8% mortgages were normal. In fact, if you want the average of this graph, it is around 8%. Although, there is no one on this planet who considers the disastrous interest rate of the early 1980s …

Subprime Auto Loans and Home Loans

July 1, 2024October 24, 2023 by Finance Gourmet

Understanding Auto Loans: Prime vs. Subprime, A Comparison In today’s economic landscape, inflation and resuming student loan payments, are causing financial strain for many Americans, leading to record-high default rates on auto loans. The situation is reminiscent of the financial crisis in 2008, but this time, it’s the auto loan market that’s feeling the heat. With borrowing costs reaching unprecedented levels, it’s crucial to understand the dynamics of prime and subprime auto loans and compare them to home loans of the same names. The Rise in Auto Loan Defaults Recent data from Bloomberg reveals a concerning trend in auto loan defaults. The percentage of subprime auto borrowers who are at least 60 days past due on their loans surged to 6.11% in September, up from 5.93% in January. These numbers paint a grim picture of the financial struggles faced by many Americans. Prime vs. Subprime Auto Loans To comprehend this issue better, let’s compare prime and subprime auto loans, taking into consideration the credit scores of borrowers. Prime Auto Loans Subprime Auto Loans Home Loans vs. Auto Loans To draw a comparison, let’s examine home loans with similar terms: Home Loans The Impact of Federal Reserve Decisions The recent surge …

Federal Reserve Holds

September 26, 2023 by Finance Gourmet

The Federal Reserve Board voted not to raise interest rates at their October meeting, finally realizing that the runaway freight train of interest rate hikes might be more detrimental to economy than the inflation that they are supposedly fighting. Did the Fed Stop Too Late The big question on everyone who actually participates in the economy’s mind is did the Fed stop raising interest rates too late. Already the housing market is seizing up as home buyers realize they have been priced out of homes by higher interest rates and sellers find that they no longer can sell their home in a weekend, or maybe within several weeks. Higher food prices are still cutting deep, but so are those credit card bills. Variable rate credit cards and HELOCs have spent the last year delivering higher and higher payments to borrowers. Many borrowers who were perfectly fine servicing their debt suddenly find themselves staring down bankruptcy. And we all know what happens when a huge chunk of America goes and declares bankruptcy. The only high point in all of this is rising wages and low unemployment are keeping more people above water than in the past. In states with rising minimum …

Should the Fed Stop Now?

July 30, 2023 by Finance Gourmet

Below is a quick belt out of information and opinion before I head off with the family on a last-of-summer vacation. Don’t bother letting me know about other links, grammatical errors, or the like. I’ll go back to normal when I get back next week. Should the Fed stop raising interest rates now? Even the staid financial press is starting to ask the question that obsequious interest rate hawks insisted was off the table, is it time to stop raising interest rates? Inflation Is Down In the carefully written narrative of the Federal Reserve fighting inflation, the Fed bank must raise interest rates, longer, and more painfully than the lesser economic hawks can stomach. Only then can inflation be brought under control by the tough love of inflation hawks. But, as they like to say, a funny thing happened on the way to the forum. It seems that if the economy were overstimulated into inflation by various temporary economic measures such as government checks from a larger child tax credit, and student loan borrowers unleashed temporarily from their burdensome payments, then the boost to inflation was temporary as well. The result is that with a tap on the brakes in …

Supreme Court Blocks Loan Cancellation

June 30, 2023 by Finance Gourmet

Alright, here is the short, short version typed up as fast as I possibly can, while I wait for my documents at the title company. In Washington D.C. they have been stretching legislation to lift more than it as designed to since before they built the Congressional building. This time, the Supreme Court decided it was too far. On a party line vote, Republicans said no, and Democrats said yes. The reasons are moot. It’s time to look at your money. Student Loan Payments Deferred Back during the pandemic when everyone was worried the economy was on the verge of collapse with hundreds of thousands of Americans unable to work because their jobs were shut down, the Feds put a pause on student loan payments. It turns out that a lot of people were spending a lot of their after-tax income paying student loans instead of consuming the goods and services that drive the economy. An extra couple hundred dollars a month can do that for you. The student loan payment pause is ending. I don’t know why Republicans hated the student payments thing so much. Maybe it’s just that they didn’t want people to have something to like about …

Did Mortgage Rates Hit 12-Year High?

April 21, 2022 by Finance Gourmet

The press loves a good scare story, and mortgage rates hitting a 12-year high is just the ticket. Mortgage rates did hit a 12-year high, and I suppose for those who are newer to the world of finance that probably seems like a big deal, but the reality is a little different. The 30-year fixed mortgage averaged 5.11% last week. That isn’t remotely a historically high mortgage interest rate. In fact, it wasn’t that long ago that a 5% mortgage was a great rate. It still is. But, these haven’t been normal times. The U.S. economy seems to lag on differently than it once did. The inflation we see today is the only real inflation we have seen in decades. Every time the American economy looked it like might get going back to “normal” something happened to smack it back down turning what used to be crazy, historically low interest rates into normal interest rates to the newest generation hitting financial literacy. This 10-year chart of the Federal Funds rate shows that we haven’t seen a Fed Funds rate above 2.5% in the last decade. In fact, just when we got close to something that might be considered normal or …

The Fed’s Balance Sheet

April 6, 2022 by Finance Gourmet

The Federal Reserve is best known for setting the Fed Funds Rate which is the interest rate that the Federal Reserve charges banks for overnight loans. That, in turn, influences, or outright directly adjusts, several other interest rates that have a meaningful impact not only on business, but American citizens and consumers as well What Is the Fed’s Balance Sheet? What is the Federal Reserve’s balance sheet? Well, that’s a tiny bit complicated. To understand you have to accept the concept that there is a certain amount of money floating around in the U.S. economy at any one time. That amount is not fixed. One day, you have $50,000 in your checking account, and a $50,000 loan, for a total of $100,000 floating around in the overall money supply. The next day, you use that $50,000 in your checking account to pay off the loan, essentially removing that $50,000 from the economy. The U.S. economy is enormous, and at any one time there are trillions of dollars floating around in the economy. However, some of that money is moving and doing something and some of it is stuck. Think of all those gold coins in Scrooge McDuck’s vault. They exist. …

What Is the Difference Between PPI and CPI?

March 15, 2022 by Finance Gourmet

These days everyone is worried about inflation. The financial media often distill reporting about inflation down to a single, easy to understand number. “Inflation rose 5% in March,” they will say. What are they talking about, exactly? What is the CPI? What is the PPI? And, what is the difference between the PPI and CPI? What Is the PPI? The PPI is the Producers Price Index. The PPI is an index that measures the average change over time in the selling prices by the producers of goods. The PPI measures price changes from the producer’s perspective. The main Producer’s Price Index is composed of the approximately 10,000 PPIs for individual products and groups of products generated each month. What Is the CPI? The CPI is the Consumers Price Index. The CPI measures the average monthly change in the prices of a set of goods and service commonly consumed by U.S. households. The CPI measures price changes from the consumer’s perspective. The CPI measures a specific set of items and services that are set in advance. How Are the PPI and the CPI Different? To understand the difference between PPI and CPI, we need to look at their construction and purpose. …

Fed Raising Rates 2022 Inflation and Economy

January 11, 2022 by Finance Gourmet

At all times the Federal Reserve’s Open Market committee has a dual task. One task is to guard against inflation. The other task is to not make the economy implode. In most cases, this isn’t as hard as it sounds as long as you have strong Federal Reserve bankers who don’t cave to Wall Street’s pressure (or dance like monkeys to in the first place.) For 2022, The Fed has one of the tricky times. This is what Wall Street pressure looks like: December payroll data showed a far fewer than Wall Street said it would be addition of 199,000 to payrolls, but wages did increase 4.7% year over year. There is a very big catch here. Remember that the economy got messed up rather good with Covid and it really isn’t done with Covid, so all of these numbers have to be taken against the fact that last year was not good and this year isn’t so much a raging economy as it is putting the pieces that fell off the board back up on it. Don’t forget to read our Zelle review. That being said, inflation is up, even compared to pre-Covid and you don’t want to fall …