Will Turkey’s inflation crisis damage Erdogan’s re-election chances?

A month before Turkey goes to the polls on May 14, the country’s inflation crisis is a major campaign theme as the six main opposition parties rally around Kemal Kilicdaroglu to create the strongest challenge yet to President Recep Tayyip Erdogan. But analysts say discontent with Erdogan’s economic management will not automatically translate into votes for Kilicdaroglu – especially given the prominence of cultural issues in Turkish politics.

It was telling that Erdogan focused on economic promises when he finally launched his presidential election campaign on April 11, more than two weeks after the secular CHP’s leader Kilicdaroglu. “We’ll bring inflation down to single digits and definitely save our country from this problem,” President Erdogan told his supporters at a stadium in Ankara.

Turkey does indeed need saving from inflation. While growth is robust, the most recent official statistics show inflation running at over 50 percent year-on-year in March, after it reached a quarter-of-a-century peak at over 85 percent in October.

Few doubt that the real figures are much higher: “It’s very clear that the government has been playing with the numbers; the real experience of everyday citizens is considerably more dire,” said Howard Eissenstat, a Turkey specialist at St. Lawrence University and the Project on Middle Eastern Democracy in Washington, DC.

The Turkish lira fell to an all-time low against the dollar in March – the latest of its periodic collapses in the currency and inflation crisis that has racked the Turkish economy since 2018.

Experts blame the crisis on Erdogan’s belief – against all economic evidence – that high interest rates fuel inflation, which has prompted him to cut rates when tight monetary policy is needed to reduce inflation.

‘Really dire’

All this marks a colossal change from the economic outlook in the early years of Erdogan’s rule, back when the Western commentariat lauded him as a forward-thinking reformer.

Erdogan’s moderate Islamist AKP party pulled off an extraordinary feat in the 2003 Turkish elections, overcoming the secularist hegemony cemented in the 1920s by the founder of modern Turkey, Mustafa Kemal Ataturk. The 2001 Turkish economic crisis was a major factor behind the AKP’s victory – and when Erdogan became prime minister in 2003, he set about reviving the economy and turning it into a powerhouse.

Bolstered by IMF support and buoyant conditions in Europe, Turkish GDP growth averaged 7.2 percent from 2002 to 2007. Many voters in Erdogan’s core constituency – working-class, socially conservative Muslims in the heartlands of Anatolia, the Asian part of Turkey – joined the ranks of the middle class.

But over the past five years, the inflation and currency crisis has affected all segments of Turkish society, from Istanbul’s Europhile bourgeoisie to pious, working-class voters in the Anatolian heartland.

“The daily lives of Turkish citizens are being squeezed in very fundamental ways,” Eissenstat said. “People who think of themselves as middle-class are having tremendous difficulty maintaining a basic standard of living. And for the vast majority of Turks who live week-to-week and month-to-month in the best of circumstances, the situation has become really dire; just putting food on the table has become a major struggle.”

Unreliable polls?

Polls suggest the president is losing support in the current economic context. Erdogan and the AKP repeatedly sailed to re-election over the past twenty years – but the latest survey by Mediapoll puts Kilicdaroglu slightly ahead for the first round, at 42.6 percent compared to 41.1 percent for Erdogan.

“I want change,” Selman Deveci, a voter in Konya, a traditionally AKP-supporting territory in the Anatolian heartland, told the Financial Times. “They’ve screwed the economy.”

But Deveci was not impressed with the opposition either: “I don’t have faith in them.”

Analysts say this attitude of disillusionment with Erdogan but scepticism towards the opposition looks to be quite widespread – casting doubt on Kilicdaroglu’s lead in some polls.

“I’m not sure I’m very trusting of the polling,” Eissenstat said. “A lot of outside observers tend to just assume that … because the economic situation is bad, people will jump ship – but not necessarily. I suspect a fair number of AKP voters will return to them, after flirting with the idea of doing something else.”

After all, many Western observers underestimated Erdogan the last time around, in 2018 – expecting then-CHP leader Muharrem Ince to push the president into a second-round runoff after a spirited campaign. Ultimately, Erdogan clinched the necessary majority in the first round with 53 percent, winning 10 million more votes than Ince.

Culture war

The economy’s consequence in determining elections is one of the oldest rules in politics, most famously encapsulated by the cliché “It’s the economy, stupid!”, a mantra for staffers created by Bill Clinton’s campaign strategist James Carville during the successful challenge to George HW Bush for the US presidency amid 1992’s deepening recession. But not every electoral campaign takes place in the kind of context the US had in 1992, when pervasive political tribalism was confined to its past and future.

A fissure has run through Turkish society ever since the early 1920s, when Mustafa Kemal Ataturk severed the profound links between Islam and politics that characterised the Ottoman Empire.

After coming to power, Erdogan slowly but surely brought Islam back into the heart of Turkish public life, eroding the power of Kemalism (so named for the secular philosophy espoused by the republic’s founder) and the “deep state” military-judicial nexus that had long buttressed it.

The anger of Turkey’s largely metropolitan secularists attracted international attention during the 2013 Gezi Park protests in Istanbul – but Erdogan retained his popularity among his millions of supporters in the Anatolian heartland, many of whom welcomed his triumph over the old establishment.

This cultural divide has many different characteristics from those seen in Europe and the US. But “culture war stuff matters in Turkey as it does in the West”, Eissenstat underlined.

And the technological changes of the last decade are amplifying this phenomenon, he added: “In a world of social media – of experiencing the world through news sources of our political choosing – political identification and ideology play a greater role in voting behaviour than before, as we’ve seen not just in Turkey but France, the US and the UK.”

All that said, as the presidential candidate uniting a heterogenous bloc of opposition parties, Kilicdaroglu has adopted a far more pragmatic stance on Turkey’s culture wars than his CHP predecessors.

Last year, Kilicdaroglu shifted the CHP’s position on women’s headscarves, a totemic issue in Turkish politics. Ataturk had discouraged the wearing of headscarves in the 1920s and his successors gradually introduced explicit bans applying at public institutions, which Erdogan then reversed in several stages.

Not only did Kilicdaroglu say the CHP had “made mistakes in the past” by supporting headscarf restrictions, he also endorsed a constitutional amendment upholding women’s right to wear it.

This strategy will make it easier for Kilicdaroglu to emphasise the economy, suggested Ozgur Unluhisarcikli, director of the German Marshall Fund’s Ankara bureau. “The culture war is the main driver of Turkish politics, but not the only one,” he said. “Kilicdaroglu has softened the impact of polarisation with his conciliatory discourse. Therefore the economy will play a more significant role than usual in these elections.”

Return to orthodoxy?

Kilicdaroglu’s economic platform is a return to orthodox monetary policy and central bank independence. Beyond that, the opposition has avoided getting into the nitty-gritty details of economic policy.

But while it is a simple answer to the inflationary crisis, returning to economic orthodoxy is not such an easy sell for the Turkish opposition.

“The opposition is promising a return to confidence and normalcy, but their problem is that confidence and normalcy requires short-term pain,” Eissenstat noted. “That means they’d rather keep the conversation about how Turkey got into this mess, keeping the election as a referendum on Erdogan, without too many questions about what the opposition in power would look like.”

“Providing economic confidence and returning to governing fundamentals is what Turkey needs,” he concluded. “But it wouldn’t necessarily be popular or easy.”

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Question: How are some bars boosting profits? Answer: Trivia nights

Brooklyn Brewery hosts a Thursday trivia night on March 30.

Noah Sheidlower | CNBC

Megan Fitzgerald has always been a trivia fan, but as the director of brand experience at Talea Beer Co. in Brooklyn she wasn’t convinced it would be a good fit for the female-founded brewery.

In February, she begged friends to come to Talea’s first trivia night, fearing only a few players would show up. Instead, more than 70 patrons joined in.

When people go out, “they want something that’s enriching and engaging and is more than just taking shots or slamming beers,” Fitzgerald said. “Trivia is easy and fun, good for big groups or couples, and you can find it usually just down the block.”

After a few weeks of partnering with the NYC Trivia League to host the Wednesday night games, Fitzgerald said Talea trivia nights were bringing in nearly double the revenue of other weeknights, barring special events. The venue has consistently pulled in nearly 20 trivia teams, increasing food and beverage sales throughout the two-hour game. Bar staff get more tips, too, she said.

Across the country, bars and restaurants are adding trivia events to their weekly or monthly schedules to bring in more guests and turn higher profits. New trivia brands have popped up in big cities and small towns, while some long-standing companies have clawed their way back to pre-pandemic numbers. However, the pace of recovery has been slow as the industry faces staffing struggles, according to trivia company leaders and restaurant owners.

While some bars craft their own trivia questions, others partner with trivia or entertainment companies, which charge a flat fee to provide questions, infrastructure and hosts. The basic idea is to bring in teams who are vying for prizes, to boost business or use extra space on what might be a typically slower night — and build a new base of regular customers.

“Trivia is advantageous for us because it’s profitable to have it during those slower times,” said Nick Marking of The Tap Yard in the outskirts of Milwaukee, which has pulled in about 30% more revenue during trivia nights at its five locations.

“The shows run you a certain amount, and then the prizes also, so you have to look at if it’s worth it to have trivia in the long run considering your profit margin is anywhere between 15% and 25% in the bar world,” Marking said.

NYC Trivia League, which hosts trivia at over 100 venues across New York City, recently surpassed its weekly event count from early 2020 and the Covid-19 pandemic lockdown. The league charges a flat fee for bars and is free for players.

Irving Torres-Lopez hosts Trivia Nite at the Brooklyn Brewery. 

Noah Sheidlower | CNBC

Cullen Shaw, one of the league’s founders, said teams are larger than they were before Covid — averaging about 3.5 people — when many bars barely held on to their trivia nights. Shaw, who hosts trivia nights at The Gaf East on the Upper East Side of Manhattan, added that the league’s switch to a digital platform from pen and paper has allowed for more efficient games.

“We fill the place up, and I don’t think that would be the case if they just put on a basketball or hockey game and hoped a crowd would come in,” he said.

The growth of ‘eatertainment’

Shaw said the NYC Trivia League has recently brought in venues that never saw themselves as trivia bars, adding over a dozen to its lineup this year alone. Retention rates are up in 2023, and the league has become more selective with venues and hosts.

“I’m sure there’s a million trivia apps, but there’s just something about a group competition, there’s something about community when like-minded and competitive people get together in a space to play a silly game but everybody understands the rules,” Shaw said.

According to Mike Kostyo, a “trendologist” at Datassential, the rapid growth of trivia nights is part of a broader move toward “eatertainment,” a fusion of dining and interactive activities ranging from bar trivia to pickleball-dining concepts. Eatertainment has been beneficial for many bars and restaurants given it doesn’t significantly add to labor costs, Kostyo added.

“You’re having a lot more customers in your venue, so you need more back-of-house, front-of-house staff, but it’s not something where you need to hire somebody to manage that. It’s usually an outside vendor doing the trivia program,” Kostyo said.

According to a Datassential report from last year, 82% of Americans have been to at least one eatertainment venue, and over 50% of those diners said they were “very interested” in revisiting such an experience. Eighteen percent of respondents said they would visit eatertainment venues more often if they had regular trivia nights.

“On a trivia night, we are easily doubling our sales from the previous night,” said Will Arvidson, tasting room manager at Brooklyn Brewery, who said the space usually brings in about 150 people for its Thursday trivia event. “It’s sometimes difficult for us to sit people, but we find a way.”

Brooklyn Brewery has been hosting trivia nights with the NYC Trivia League since 2019.

Noah Sheidlower | CNBC

Victoria Dawes and Kristina Cheng, who teamed up on a recent Thursday at Brooklyn Brewery, said they’ve been playing bar trivia for about a decade and agreed it’s more popular now than pre-pandemic. Both said they carve out time each week to bond with friends and show off their random knowledge.

“I feel like we had lost so much connection with each other, and trivia has been a particularly fun way to have very normal interactions again,” Dawes said.

The rise of eatertainment comes as inflation compels more Americans to scrutinize how they spend their money.

According to Datassential’s February Table Stakes Report, 39% of consumers said they’re pulling back on eating out, though Kostyo said cost-conscious people are looking to eatertainment venues for value when they do go out.

“A lot of consumers, they’re stuck at home all day and they don’t really socialize, so they’re looking for those opportunities from the food service industry to socialize with friends and family again,” Kostyo said.

“But that doesn’t mean that they’re back in droves,” he added.

Brooklyn Brewery hosts a Thursday trivia night on March 30.

Noah Sheidlower | CNBC

Teams can win cash prizes — as much as $50 or $100 for first place at some bars — or shots, food or free merchandise. Those possible winnings could encourage more spending from players and potentially offset costs for budget-conscious trivia-goers.

Conrad Corretti, who says his trivia team usually places in the top five at Brooklyn Brewery and other venues, said he’s been more likely to cut back on spending on other weeknights so he can spend “more liberally” at bar trivia.

“You’re showing up with your group, and you don’t really have to interact with other people, so it’s been a good activity to hang out with people you don’t always see and have a good time,” he said.

Bumpy road to recovery

With so many new venues hosting trivia nights, Kostyo cautioned bars may “cannibalize each other” as more businesses try to plant their flag in the trivia space. He’s seen more niche topics at trivia nights pull in specific audiences.

To attract more consumers, some companies, like Geeks Who Drink, have recruited new quiz masters and brought on client managers to cultivate relationships with venues. Bryan Carr, marketing director for the trivia company, said the company launched a “twitch” quiz still running today, and it maintained its 15 plus-person writing team to keep creative content flowing.

Bringing back longtime venues and onboarding new ones has been a “slow-moving process,” but the company has continued growing its presence in cities including Denver, Chicago and Austin, Texas. It does full-service pub quizzes in around 650 venues, though that number was around 1,000 pre-pandemic.

“We try to provide venues with a great starter kit to make sure that their event gets going, and we know that it takes at times two to three months to really build up that consistent following,” Carr said. “They really can see a big difference from before they had trivia and then when they have it on these slower off-nights.”

On a trivia night, we are easily doubling our sales from the previous night. … It’s sometimes difficult for us to sit people, but we find a way.

Will Arvidson

Tasting room manager, Brooklyn Brewery

Joshua Lieberthal, founder of California-based company King Trivia, which has venues in about 35 states, said he’s seen considerably more trivia nights today than before the pandemic. However, with tighter profit margins, many bars have been forced to do “vastly more” weekly events to stay afloat, which might explain why the company went from around 200 weekly venues in 2019 to about 325 now.

Still, about 30% to 40% of King Trivia’s pre-Covid clients went out of business, and the rebuilding process has been bumpy.

“It wasn’t like you just got back your old clients when things restarted — it was starting from scratch,” Lieberthal said. “Amazingly, we were more profitable pre-pandemic than we are today, even though we’re so much larger than we were before.”

Attendance and retention are back, more or less, to pre-pandemic levels due in part to the company’s expanded sales and customer services teams, he said. Though every week, Lieberthal said another client goes on hiatus or pushes back a launch date due to staffing troubles.

“Because everyone gets paid more, because it’s hard to staff, you need more people working behind the scenes to make it all happen,” Lieberthal said. “That’s an unfortunate reality that the breakeven point is much higher in this industry than it used to be, but thankfully so many venues want to run shows that it’s doable.”

For Wisconsin-based America’s Pub Quiz, founded in 2007 by Michael Landmann, everything from staffing to the cost of pencil boxes has slowed the company’s pace of growth compared to before the pandemic.

By 2020, the company had 205 venues in eight states. It’s now back to around 175 despite having to start from scratch and contend with higher costs of doing business.

The company created an online system that could handle dozens more teams, but Landmann noticed many venues were unable to keep up with increased demand. Others with ample staff couldn’t find a suitable trivia host.

Tyson Sevier, general manager at Omaha, Nebraska-based Varsity Sports Cafe, which has partnered with America’s Pub Quiz for a decade, said locations have often been short one or two employees on a busy trivia night. That’s a far cry, he acknowledged, from the “employee horror stories” he said he’s heard from other bar owners in the city.

Still, trivia nights at Varsity Sports Cafe pull in $2,000 to $3,000 more compared with other weeknights, he said.

“We have more and more people calling that want to play, so I think that there’s definitely an interest such that only a couple of bars had trivia years ago and now it seems like every bar has it,” Sevier said. “You have to do it now to be competitive.”

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A solution for global food insecurity may be hiding in our oceans


The opinions expressed in this article are those of the author and do not represent in any way the editorial position of Euronews.

As any investor knows, a diverse portfolio is an important risk mitigation strategy, offsetting potential losses from one investment with the returns from another. The same is true when it comes to food security.

Countries investing in the full range of accessible and affordable foods can therefore rely on certain sub-sectors to provide vital nutrition when others are affected by a climate shock or conflict, minimising the kind of disruption, volatility, and inflation currently playing out.

Blue food — foods derived from aquatic animals, plants and algae caught or cultivated in freshwater and marine environments — are a key part of many diets and have a potentially important role to play in a transition towards more healthy and sustainable ways of eating.

Yet, for most countries, aquatic foods remain something of a blind spot and have been remarkably absent in discussions about how to rapidly transform and de-risk our food systems. 

This needs to change because blue foods have much to offer.

We are neglecting a diverse food source with low environmental footprint

For one, they are immensely diverse. Globally, we catch, farm and consume more than 2,500 species of fish, shellfish and aquatic plants. 

With growing stress on existing food systems from climate change, environmental harm and rising populations, this diversity represents significant potential for finding culturally acceptable blue foods with high nutritional and economic value yet relatively low environmental impact. 

It can thus alleviate pressure on land-based production systems while offering lower-emission, often nutrient-dense alternatives to many terrestrial — and particularly red and processed — meats.

The returns on offer from blue foods vary depending on the context. By compiling and assessing extensive research conducted within the Blue Food Assessment, a new paper identifies four valuable roles that fish and other aquatic animal-sourced foods can play as part of a diverse and healthy nutrition portfolio.

Firstly, blue foods with relatively low environmental footprints that can be managed sustainably could be leveraged to reduce the climate impact of land-based agri-food systems while simultaneously enhancing the resilience of food provision. 

Farmed bivalves like oysters and mussels, for example, produce not only low levels of emissions but also require limited freshwater and land while providing 76 times more vitamin B12 and five times more iron than chicken. 

Thus, investing in the growth of unfed aquaculture for bivalves and seaweeds can increase the supply of high-value nutrition without jeopardising climate goals or increasing climate vulnerability.

Ocean food sources can fill a nutrient gap, too

Secondly, blue foods can also reduce human exposure to nutrient deficiencies, especially B12 and omega-3, which are lacking in many global diets. 

In some less developed settings, deficiencies stem from undernutrition, and in these settings, relatively small amounts of nutritionally dense blue foods can alleviate the detrimental effects of low B12 linked to cognitive function. 

This is particularly important in developing coastal regions and Small Island Developing States, where shifts away from traditional diets have been associated with increases in diet-related illnesses.

But blue foods can also fill a nutrient gap left by many modern diets. In many developed countries, over-consumption of red, and particularly processed meats, has led to a rise in non-communicable diseases.

A third and equally important nutritional role of blue foods is that they can offer a healthy protein alternative to reduce the risk of cardiovascular disease. 

The high nutrient content of many fish and shellfish also means that people could eat smaller quantities yet still meet their nutritional needs.

Billions depend on blue foods, but it might not be for everyone

Finally, blue foods have an integral role to play in upholding the cultures, diets, economies and livelihoods of billions of people worldwide. 

The sector already provides livelihoods for some 600 million people, including those in coastal communities and island nations, for whom there are few viable and accessible alternatives across food systems.

Some three billion people get vital nutrients and 205 types of animal protein from fish, seafood and aquatic plants. 

This contribution to food systems must both be safeguarded and sustainably scaled up, with the potential to avert up to 166 million cases of micronutrient deficiency.

Fishing and aquaculture are not without social or environmental impact, and some aquatic stocks have proven difficult to manage sustainably under current market pressures. 

Our analysis suggests that in some contexts, existing cultural preferences may mean that “leap-frogging” to largely plant-based diets may therefore be a more environmentally and socially desirable option.

A broader food portfolio for more sustainable diets

Blue foods are not, therefore, a panacea, but they have a lot to offer and deserve a place at the table when policymakers around the world discuss national food portfolios and identify salient ways to achieve healthy and sustainable diets for all. 

Sustainability certification schemes, inclusive dietary guidelines, and other initiatives to change food consumption behaviour can all contribute to transitioning to more sustainable diets by reinforcing the role of blue foods in diets around the world.

Investing in the diversity offered by blue foods is an investment in food system resilience, which in turn can bring a greater ability to cope with the certain uncertainties of tomorrow’s food production and trade.

In turbulent times, a broader food portfolio can help steer us towards calmer waters.

_Beatrice Crona is co-chair of the Blue Food Assessment, professor at the Stockholm Resilience Centre at Stockholm University, and Executive Director of the Global Economic Dynamics and the Biosphere Program at the Royal Swedish Academy of Science.
_

At Euronews, we believe all views matter. Contact us at [email protected] to send pitches or submissions and be part of the conversation.

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Here’s what the Federal Reserve’s 25 basis point interest rate hike means for your money

The Federal Reserve raised the target federal funds rate for the eighth time in a row on Wednesday, in its continued effort to tame persistent inflation.

At its latest meeting, the central bank approved a more modest 0.25 percentage point increase after recent signs that inflationary pressures have started to cool.

“The easing of inflation pressures is evident, but this doesn’t mean the Federal Reserve’s job is done,” said Greg McBride, chief financial analyst at Bankrate.com. “There is still a long way to go to get to 2% inflation.”

What the federal funds rate means to you

The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves do affect the borrowing and saving rates consumers see every day.

This rate hike will correspond with a rise in the prime rate and immediately send financing costs higher for many forms of consumer borrowing — putting more pressure on households already under financial strain.

“Inflation has shredded household budgets and, in many cases, households have had to lean against credit cards to bridge the gap,” McBride said.

On the flip side, “with rates still rising and inflation now declining, it is the best of both worlds for savers,” he added.

How higher interest rates can affect your money

1. Your credit card rate will rise

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rises, the prime rate does, as well, and your credit card rate follows suit within one or two billing cycles.

“Credit card interest rates are already as high as they’ve been in decades,” said Matt Schulz, chief credit analyst at LendingTree. “While the Fed is taking its foot off the gas a bit when it comes to raising rates, credit card APRs almost certainly will keep climbing for at least the next few months, so it is important that cardholders continue to focus on knocking down their debt.”

Credit card annual percentage rates are now near 20%, on average, up from 16.3% a year ago, according to Bankrate. At the same time, more cardholders carry debt from month to month while paying sky-high interest charges — “that’s a bad combination,” McBride said.

At more than 19%, if you made minimum payments toward the average credit card balance — which is $5,474, according to TransUnion — it would take you almost 17 years to pay off the debt and cost you more than $7,528 in interest, Bankrate calculated.

Altogether, this rate hike will cost credit card users at least an additional $1.6 billion in interest charges in 2023, according to a separate analysis by WalletHub.

“A 0% balance transfer credit card remains one of the best weapons Americans have in the battle against credit card debt,” Schulz advised.

Otherwise, consumers should consolidate and pay off high-interest credit cards with a lower-interest personal loan, he said. “The rates on new personal loan offers have climbed recently as well, but if you have good credit, you may be able to find options that feature lower rates that what you currently have on your credit card.”

2. Mortgage rates will stay higher

Rates on 15-year and 30-year mortgages are fixed and tied to Treasury yields and the economy. As economic growth has slowed, these rates have started to come down but are still at a 10-year high, according to Jacob Channel, senior economist at LendingTree.

The average interest rate for a 30-year fixed-rate mortgage is now around 6.4% — up almost 3 full percentage points from 3.55% a year ago.

“Relatively high rates, combined with persistently high home prices, mean that buying a home is still a challenge for many,” Channel said.

This rate hike has increased the cost of new mortgages by around 10 basis points, which translates to roughly $9,360 over the lifetime of a 30-year loan, assuming the average home loan of $401,300, WalletHub found. A basis point is equal to 0.01 of a percentage point.

“We’re still a ways away from the housing market being truly affordable, even if it has recently become a bit less expensive,” Channel said.

Other home loans are more closely tied to the Fed’s actions. Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate. Most ARMs adjust once a year, but a HELOC adjusts right away. Already, the average rate for a HELOC is up to 7.65% from 4.11% a year ago.

More from Personal Finance:
64% of Americans are living paycheck to paycheck
What is a ‘rolling recession’ and how does it impact you?
Almost half of Americans think we’re already in a recession

3. Auto loans will get more expensive

Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans, so if you are planning to buy a car, you’ll shell out more in the months ahead.

The average interest rate on a five-year new car loan is currently 6.18%, up from 3.96% last year.

The Fed’s latest move could push up the average interest rate even higher, although consumers with higher credit scores may be able to secure better loan terms or look to some used car models for better deals.

Paying an annual percentage rate of 6% instead of 4% would cost consumers $2,672 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

“The ever-increasing costs of financing remain a challenge,” said Ivan Drury, Edmunds’ director of insights.

4. Some student loans will get pricier

Federal student loan rates are also fixed, so most borrowers won’t be affected immediately. But if you are about to borrow money for college, the interest rate on federal student loans taken out for the 2022-23 academic year already rose to 4.99%, up from 3.73% last year and any loans disbursed after July 1 will likely be even higher.

If you have a private loan, those loans may be fixed or have a variable rate tied to the Libor, prime or T-bill rates, which means that as the central bank raises rates, borrowers will likely pay more in interest, although how much more will vary by the benchmark.

Currently, average private student loan fixed rates can range from just under 4% to almost 15%, according to Bankrate. As with auto loans, they also vary widely based on your credit score.

For now, anyone with existing federal education debt will benefit from rates at 0% until the payment pause ends, which the Education Department expects to happen sometime this year.

What savers should know about higher interest rates

The good news is that interest rates on savings accounts are finally higher after the recent run of rate hikes.

While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate, and the savings account rates at some of the largest retail banks, which have been near rock bottom during most of the Covid pandemic, are currently up to 0.33%, on average.

Also, thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 4.35%, much higher than the average rate from a traditional, brick-and-mortar bank.

Rates on one-year certificates of deposit at online banks are even higher, now around 4.75%, according to DepositAccounts.com.

As the Fed continues its rate-hiking cycle, these yields will continue to rise, as well. However, you have to shop around to take advantage of them, according to Yiming Ma, an assistant finance professor at Columbia University Business School.

“If you haven’t already, it’s really important to benefit from the high interest environment by getting a higher return,” she said.

Still, because the inflation rate is now higher than all of these rates, any money in savings loses purchasing power over time. 

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Inflation is expected to have declined in December, but it may not be enough to stop the Fed

A woman shops in a supermarket as rising inflation affects consumer prices in Los Angeles, California, June 13, 2022.

Lucy Nicholson | Reuters

The pace of consumer inflation is expected to have fallen slightly in December from the prior month because of a sharp drop in gasoline and energy prices, but the annual rate is still likely to remain uncomfortably high.

According to Dow Jones, economists now expect a decline of 0.1% in the consumer price index on a monthly basis, but inflation is still expected to climb at a 6.5% rate from the prior year. That compares to a gain of 0.1% in November, and a 7.1% pace year over year. However, the CPI is well off the 9.1% peak rate in June.

Core CPI, excluding energy and food, is expected to be up 0.3% in December, gaining 5.7% on a year-over-year basis. Core CPI rose 0.2% in November and 6% on a yearly basis.

“We welcome it with open arms. It’s good news,” said KPMG chief economist Diane Swonk of the expected decline. “It’s great and it helped to fuel consumer spending in the fourth quarter. … But it’s still not enough.”

The consumer price index is expected Thursday at 8:30 a.m. ET. It is the final CPI report before the Federal Reserve’s Feb. 1 interest rate decision. For that reason, the inflation number has become a major event for financial markets, and now some traders are betting it will show inflation slowing even more than economists forecast. They also point to weaker-than-expected wage growth in December’s jobs report, as well as other data that reflects lower inflation expectations.

Stocks rallied on Wednesday ahead of the report. “The market is looking at it as glass half full. Inflation is rolling over, and the Fed is almost done raising interest rates,” said Peter Boockvar, chief investment officer at Bleakley Financial Group. “I think they remember the last two months when you had numbers that were well below expectations. They’re just assuming that’s going to be the case again.”

Expected impact on the Fed

In the futures market, traders continued to bet the central bank will raise rates by just a quarter point at its next meeting. Meanwhile, some economists continue to expect policymakers will increase the fed funds target rate by a half percentage point. Market expectations are just 20% for a 50 basis point hike. A basis point equals 0.01 of a percentage point.

“It’s amazing how much reaction and overreaction there is for one single data point,” said Simona Mocuta, chief economist at State Street Global Advisors. “Clearly the CPI is very important. In this particular case, it does have fairly direct policy implications, which are about the size of the next Fed rate hike.”

Mocuta said a cooler CPI should influence the Fed. “The market has not priced the full 50. I think the market is right in this case,” she said. “The Fed can still contradict the market, but what the market is pricing is the right decision.”

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Wilmington Trust chief economist Luke Tilley said a 12% decline in gasoline prices in December and other decreases in energy prices — for expenses like home heating — helped drive inflation lower.

“Shelter is the main focus because of the lag,” he said. Rental market data shows a slowing in rates, but the CPI has not yet reflected it. “Everyone is familiar with the lag that it takes for the data to show up in the CPI,” Tilley added. “We think there could be a sharper slowdown.” Shelter costs are 40% of core CPI.

Shelter is expected to be up 0.6% month over month. Tilley said with the decline in the real estate market, he is hearing from landlords that they are having a more difficult time raising rents. “We’re penciling in slower increases in January and February and March on that shorter lag,” he said.

A focus on inflation in services

Economists are watching closely to see how much inflation related to services rises in CPI, since goods inflation is expected to continue to come down now that supply chains are operating more normally.

“The headline monthly changes over the last two, three months overstate the improvement. We’re not going to get the same help from gasoline in the next report. I don’t want to see an acceleration in shelter. I want to see some of the discretionary areas show deceleration,” said State Street’s Mocuta. “I think right now the focus is very much on the services side.”

The market is laser focused on inflation since the Fed’s progress in fighting it could determine how far the central bank will go on its rate hiking path. The rate increases are slowing the economy, and how much more it chooses to do so could be the difference between a soft landing or a recession.

“The hope is that basically we are now in a position where you could envision a soft landing. That requires the Fed to not only stop raising rates but ease up sooner and that doesn’t seem to be where they’re at,” said Swonk. “The Fed is hedging a different bet than the markets are. … This is where nuance is really hard. You’re in this position where you’re improving. It’s like a patient is getting better, but they’re not out of the hospital yet.”

The fed funds rate range is currently at 4.25% to 4.5%, and the central bank has forecast a final high rate of 5.1% for this year.

“The Fed is also worried about a second round of supply shock, whether it’s China’s abrupt abandonment of its zero-Covid policy or something else from Russia. They don’t want to declare victory too soon,” said Swonk. “They’re making that very clear. They’ve said it over and over again and nobody listens.”

Economists expect another key metric — the personal consumption expenditure deflator — could show core inflation slowing even below the Fed’s forecast of 3.5% by Dec. 31. Some economists who expect a recession predict rate cuts before year-end, as the markets expect. But the Fed has no forecast for rate cuts until 2024.

Some strategists expect Fed officials to begin to sound more dovish and less at odds with the market view. Boston Fed President Susan Collins said in an interview with The New York Times on Wednesday that she was leaning toward a quarter-point hike at the next meeting.

“We think one of the changes in coming months is the Fed will soon realize it is cheaper to change the inflation narrative than reverse a recession leading to millions of lost jobs,” writes Fundstrat founder Tom Lee in a note Wednesday.

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Here’s what the Federal Reserve’s half-point rate hike means for you

The Federal Reserve raised its target federal funds rate by 0.5 percentage points at the end of its two-day meeting Wednesday in a continued effort to cool inflation.

Although this marks a more typical hike compared to the super-size 0.75 percentage point moves at each of the last four meetings, the central bank is far from finished, according to Greg McBride, chief financial analyst at Bankrate.com.

“The months ahead will see the Fed raising interest rates at a more customary pace,” McBride said.

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The latest move is only one part of a rate-hiking cycle, which aims to bring down inflation without tipping the economy into a recession, as some feared would have happened already.

“I thought we would be in the midst of a recession at this point, and we’re not,” said Laura Veldkamp, a professor of finance and economics at Columbia University Business School.

“Every single time since World War II the Federal Reserve has acted to reduce inflation, unemployment has shot up, and we are not seeing that this time, and that’s what stands out,” she said. “I couldn’t really imagine a better scenario.”

Still, the combination of higher rates and inflation has hit household budgets particularly hard.

What the federal funds rate means for you

The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Whether directly or indirectly, higher Fed rates influence borrowing costs for consumers and, to a lesser extent, the rates they earn on savings accounts.

For now, this leaves many Americans in a bind as inflation and higher prices cause more people to lean on credit just when interest rates rise at the fastest pace in decades.

With more economic uncertainty ahead, consumers should be taking specific steps to stabilize their finances — including paying down debt, especially costly credit card and other variable rate debt, and increasing savings, McBride advised.

Pay down high-rate debt

Since most credit cards have a variable interest rate, there’s a direct connection to the Fed’s benchmark, so short-term borrowing rates are already heading higher.

Credit card annual percentage rates are now over 19%, on average, up from 16.3% at the beginning of the year, according to Bankrate.

The cost of existing credit card debt has already increased by at least $22.9 billion due to the Fed’s rate hikes, and it will rise by an additional $3.2 billion with this latest increase, according to a recent analysis by WalletHub.

If you’re carrying a balance, “grab one of the zero-percent or low-rate balance transfer offers,” McBride advised. Cards offering 15, 18 and even 21 months with no interest on transferred balances are still widely available, he said.

“This gives you a tailwind to get the debt paid off and shields you from the effect of additional rate hikes still to come.”

Otherwise, try consolidating and paying off high-interest credit cards with a lower interest home equity loan or personal loan.

Consumers with an adjustable-rate mortgage or home equity lines of credit may also want to switch to a fixed rate. 

How to know if we are in a recession

Because longer-term 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the broader economy, those homeowners won’t be immediately impacted by a rate hike.

However, the average interest rate for a 30-year fixed-rate mortgage is around 6.33% this week — up more than 3 full percentage points from 3.11% a year ago.

“These relatively high rates, combined with persistently high home prices, mean that buying a home is still a challenge for many,” said Jacob Channel, senior economic analyst at LendingTree.

The increase in mortgage rates since the start of 2022 has the same impact on affordability as a 32% increase in home prices, according to McBride’s analysis. “If you had been approved for a $300,000 mortgage in the beginning of the year, that’s the equivalent of less than $204,500 today.”

Anyone planning to finance a new car will also shell out more in the months ahead. Even though auto loans are fixed, payments are similarly getting bigger because interest rates are rising.

The average monthly payment jumped above $700 in November compared to $657 earlier in the year, despite the average amount financed and average loan term lengths staying more or less the same, according to data from Edmunds.

“Just as the industry is starting to see inventory levels get to a better place so that shoppers can actually find the vehicles they’re looking for, interest rates have risen to the point where more consumers are facing monthly payments that they likely cannot afford,” said Ivan Drury, Edmunds’ director of insights. 

Federal student loan rates are also fixed, so most borrowers won’t be impacted immediately by a rate hike. However, if you have a private loan, those loans may be fixed or have a variable rate tied to the Libor, prime or T-bill rates — which means that as the Fed raises rates, borrowers will likely pay more in interest, although how much more will vary by the benchmark.

That makes this a particularly good time to identify the loans you have outstanding and see if refinancing makes sense.

Shop for higher savings rates

While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate, and the savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.24%, on average.

Thanks, in part, to lower overhead expenses, the average online savings account rate is closer to 4%, much higher than the average rate from a traditional, brick-and-mortar bank.

“The good news is savers are seeing the best returns in 14 years, if they are shopping around,” McBride said.

Top-yielding certificates of deposit, which pay between 4% and 5%, are even better than a high-yield savings account.

And yet, because the inflation rate is now higher than all of these rates, any money in savings loses purchasing power over time. 

What’s coming next for interest rates

Consumers should prepare for even higher interest rates in the coming months.

Even though the Fed has already raised rates seven times this year, more hikes are on the horizon as the central bank slowly reins in inflation.

Recent data show that these moves are starting to take affect, including a better-than-expected consumer prices report for November. However, inflation remains well above the Fed’s 2% target.

“They will still be raising interest rates now and into 2023,” McBride said. “The ultimate stopping point is unknown, as is how long rates will stay at that eventual destination.”

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Correction: A previous version of this story misstated the extent of previous rate hikes.

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The Federal Reserve is about to hike interest rates one last time this year. Here’s how it may affect you

The Federal Reserve is expected on Wednesday to raise interest rates for the seventh time this year to combat stubborn inflation. 

The U.S. central bank will likely approve a 0.5 percentage point hike, a more typical pace compared with the super-size 75 basis point moves at each of the last four meetings.

This would push benchmark borrowing rates to a target range of 4.25% to 4.5%. Although that’s not the rate consumers pay, the Fed’s moves still affect the rates consumers see every day.

Why a smaller rate hike may be ‘pretty good news’

By raising rates, the Fed makes it costlier to take out a loan, causing people to borrow and spend less, effectively pumping the brakes on the economy and slowing down the pace of price increases. 

“For most people this is pretty good news because prices are starting to stabilize,” said Laura Veldkamp, a professor of finance and economics at Columbia University Business School. “That’s going to bring a lot of reassurance to households.”

However, “there are some households that will be hurt by this,” she added — particularly those with variable rate debt.

For example, most credit cards come with a variable rate, which means there’s a direct connection to the Fed’s benchmark rate.

But it doesn’t stop there.

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What the Fed’s rate hike means for you

Another increase in the prime rate will send financing costs even higher for many other forms of consumer debt. On the flip side, higher interest rates also mean savers will earn more money on their deposits.

“Credit card rates are at a record high and still increasing,” said Greg McBride, chief financial analyst at Bankrate.com. “Auto loan rates are at an 11-year high, home equity lines of credit are at a 15-year high, and online savings account and CD [certificate of deposit] yields haven’t been this high since 2008.”

Here’s a breakdown of how increases in the benchmark interest rate have impacted everything from mortgages and credit cards to car loans, student debt and savings:

1. Mortgages

2. Credit cards

Credit card annual percentage rates are now more than 19%, on average, up from 16.3% at the beginning of the year, according to Bankrate.

“Even those with the best credit card can expect to be offered APRs of 18% and higher,” said Matt Schulz, LendingTree’s chief credit analyst.

But “rates aren’t just going up on new cards,” he added. “The rate you’re paying on your current credit card is likely going up, too.”

Further, households are increasingly leaning on credit cards to afford basic necessities since incomes have not kept pace with inflation, making it even harder for those carrying a balance from month to month.

If the Fed announces a 50 basis point hike as expected, the cost of existing credit card debt will increase by an additional $3.2 billion in the next year alone, according to a new analysis by WalletHub.

3. Auto loans

Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans. So if you are planning to buy a car, you’ll shell out more in the months ahead.

The average interest rate on a five-year new car loan is currently 6.05%, up from 3.86% at the beginning of the year, although consumers with higher credit scores may be able to secure better loan terms.

Paying an annual percentage rate of 6.05% instead of 3.86% could cost consumers roughly $5,731 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

Still, it’s not the interest rate but the sticker price of the vehicle that’s primarily causing an affordability crunch, McBride said.

4. Student loans

The interest rate on federal student loans taken out for the 2022-23 academic year already rose to 4.99%, up from 3.73% last year and 2.75% in 2020-21. It won’t budge until next summer: Congress sets the rate for federal student loans each May for the upcoming academic year based on the 10-year Treasury rate. That new rate goes into effect in July.

Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that, as the Fed raises rates, those borrowers are also paying more in interest. How much more, however, will vary with the benchmark.

Currently, average private student loan fixed rates can range from 2.99% to 14.96%, and 2.99% to 14.86% for variable rates, according to Bankrate. As with auto loans, they vary widely based on your credit score.

5. Savings accounts

On the upside, the interest rates on some savings accounts are also higher after consecutive rate hikes.

While the Fed has no direct influence on deposit rates, the rates tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.24%, on average.

Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 4%, much higher than the average rate from a traditional, brick-and-mortar bank, according to Bankrate.

“Interest rates can vary substantially, especially in today’s interest rate environment in which the Fed has raised its benchmark rate to its highest level in more than a decade,” said Ken Tumin, founder of DepositAccounts.com.

“Banks make money off of customers who don’t monitor their interest rates,” Tumin said.

With balances of $1,000 to $25,000, the difference between the lowest and highest annual percentage yield can result in an additional $51 to $965 in a year and $646 to $11,685 in 10 years, according to an analysis by DepositAccounts.

Still, any money earning less than the rate of inflation loses purchasing power over time. 

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Buyers need a six-figure income to afford a ‘typical’ home, report finds. Here’s how to reduce the cost


It’s no secret that it’s a tough market for prospective home buyers.

In October, U.S. buyers needed to earn $107,281 to afford the median monthly mortgage payment of $2,682 for a “typical home,” Redfin reported this week. 

That’s 45.6% higher than the $73,668 yearly income needed to cover the median mortgage payment 12 months ago, the report finds.

The primary reason is rising mortgage interest rates, said Melissa Cohn, regional vice president at William Raveis Mortgage. “The bottom line is mortgage rates have more than doubled since the beginning of the year,” she said.

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Despite the sharp drop reported this week, the average interest rate for a 30-year fixed-rate mortgage of $647,200 or less was hovering below 7%, compared to under 3.50% at the beginning of January.

And while home values have softened in some markets, the average sales price is up from one year ago.

“Home prices have gone up substantially, mortgage rates have more than doubled and that’s just crushing affordability,” said Keith Gumbinger, vice president of mortgage website HSH.

Meanwhile, a higher cost of living is still cutting into Americans’ budgets, with annual inflation at 7.7% in October.

How to make your mortgage more affordable 

While the current conditions may feel bleak for buyers, experts say there are a few ways to reduce your monthly mortgage payment.

For example, a higher down payment means a smaller mortgage and lower monthly payments, Gumbinger explained. “More down in this sort of environment can definitely play a role in getting your mortgage cost under control,” he said.

Another option is an adjustable-rate mortgage, or ARM, which offers a lower initial interest rate compared to a fixed-rate mortgage. The rate later adjusts at a predetermined intervals to the market rate at that time.

An ARM may also be worth considering, as long as you understand the risks, Cohn said.

If you’re planning to stay in the home for several years, there’s a risk you won’t be able to refinance to a fixed-rate mortgage before the ARM adjusts, she said. And in a rising rate environment, it’s likely to adjust higher.

Your eligibility for a future refinance can change if your income declines or your home value drops. “That’s a greater risk, especially for a first-time homebuyer,” Cohn said.

Of course, home values and demand vary by location, which affects affordability, Gumbinger said. “Being patient and being opportunistic is a good strategy for market conditions like this,” he said.



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