Fed’s Interest Rate Hikes Stir Economic Anxiety Among Middle-Class Americans

Middle-class Americans are experiencing heightened anxiety regarding the economy, even with a robust job market and a surprising third-quarter GDP growth of 4.9%, according to a recent Harris Poll conducted for Bloomberg News. This unease is largely attributed to the Federal Reserve’s aggressive approach to raising interest rates in an effort to combat inflation, which reached a 40-year peak in 2022. The poll indicates that 57% of middle-class respondents believe these elevated interest rates are adversely affecting their household finances, while 44% are feeling stressed about economic conditions.

The Federal Reserve has implemented a “higher-for-longer” strategy, keeping interest rates at their peak levels of 5.25%-5.5% as of September, with hints of a possible increase before the year’s end. Investors monitoring the situation expect interest rates to remain steady during the upcoming November meeting, but some predict a potential rise in December. The sustained high interest rates have increased the federal funds rate and 30-year mortgage rates, leading to higher borrowing costs for various loans, including home equity lines of credit, auto loans, and credit cards.

The Harris Poll highlights rising economic worries linked to these increased borrowing costs, which magnify financial stress. Consequently, U.S. consumers incurred record credit card interest and fees totaling $130 billion last year, as reported by the Consumer Financial Protection Bureau. Continuing the 4.9% annual growth rate recorded in the third quarter could further fuel inflation and prompt additional rate hikes.

Individuals like Rebecca Acuna from Indianapolis, Tiffany Bond from Maine, and Tom Maley from Ohio have expressed their concerns over financial management and affordability amid these conditions. This growing anxiety poses a challenge to President Joe Biden’s economic agenda intended to support the middle class. The situation is further complicated by a surge in car payment defaults and differing economic outlooks across generations.

Karl Jacob, CEO of LoanSnap, cautions that the current phase of elevated interest rates is likely to weigh on Americans and could have broader implications for the economy. Meanwhile, inflation remains above the Federal Reserve’s target of 2%, as shown in the Consumer Price Index released by the Labor Department.