How the Federal Reserve “Tapering” Will Effect Consumers
The feds are winding down, also referred to as “tapering”, their infusion of dollars (in the trillions) into the US economy. This tapering of their buying mortgage-back securities and Treasury investments will affect more than the investment community. It’s going to affect consumers, too.
This stimulus program, ongoing for the past five years, is reaching the end of its life. While the Fed is not shutting it down totally, the feds are going to taper down their buying activity in 2014. Consumers hoping to buy big-ticket items, such as autos and homes, will probably face rising interest rates, meaning these purchases will cost more.
While not a hard guarantee of rising interest rates or inflation, economic theory predicts the strong potential for increased financing costs. People considering buying new homes should not put off purchases too long, as they risk not qualifying for the mortgages they need to buy the homes they want.
Should market rates rise, student loan interest rates also may spike upward. Since many college students and graduates are already weighed down with large education loan balances, younger people may cut back future auto or home buying activities.
The rising cost of education has already slowed the volume of admissions applications. If federal student loan interest rates increase, new student applications may decline further. According to a Kaplan Test Prep survey, even law schools are feeling the effects, as 54 percent are reducing the size of incoming classes.
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