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As interest rate hikes loom, this St. Louis bank president explains what it might mean for you

Dan Stephen, president of Central Bank of St. Louis, spoke with the St. Louis Business Journal about how the interest rate increases could affect everyone.
Credit: St. Louis Business Journal

ST. LOUIS — Inflation is a hot topic of conversation, but is anyone doing something about it?

Ryan Sweet, a senior economist at Moody’s Analytics, released an analysis last week that the average household is spending an additional $276 more per month because of inflation.

James Bullard, president of the Federal Reserve Bank of St. Louis, made national news last Thursday after the Labor Department said inflation reached another four-decade high in January. Bullard told Bloomberg News he wants a full percentage point of interest rate increases over the next three meetings of the central’s bank’s policy committee.

Among the unanswered questions is whether that committee in March will raise interest rates, which are near zero, by a quarter-percentage point or a half-percentage point, which the central bank has not done since 2000.

What does it all mean? The Business Journal spoke with Dan Stephen, president of Central Bank of St. Louis, about how the interest rate increases could affect everyone from those with savings accounts to businesses seeking loans. The interview has been edited for length and clarity.

The Federal Reserve Board has signaled it will raise interest rates in March, the first in what is expected to be a series of rate hikes this year. How will this affect borrowers? You’ve got to put your borrowers into four buckets – commercial and consumer, fixed and floating rate. If you have a home loan as a consumer at a fixed rate, boom, you’re good. Same thing on the commercial side; if you have a term loan and the rate is fixed for let’s say three to 10 years, you're not going to be impacted much in the short run.

So for the floating rate consumer and commercial, they’re likely to have the nearer-term impact. On the consumer side, it’s mostly home equity loans that affect more people because credit cards are interest-rate sensitive but in a narrower band and generally on a lower loan balance. Some of them are charging 14%. Some of them are charging 18%. That’s not going to swing that quickly as a percentage of your total costs. But if you have a home equity loan with a large balance and it goes up a point, you’re going to notice that pretty quick.

And then any kind of installment debt, going to buy a car or a camper or an ATV; those rates will start moving up relatively quickly. But also those worlds get artificial stimulation by manufacturers, like Ford Motor will say "we will keep our rate down to keep sales up." 

Click here to read the full interview from the St. Louis Business Journal.


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