Fed Interest Rate Hike Hurts Women, African-Americans, Latinos And Low-Income People

Federal Reserve Board Chair Janet Yellen announced Wednesday that the central bank would be adjusting the target range for the federal funds rate—a short-term interest rate at which banks lend money to one another when their reserves fall short—for the third time since the Great Recession, to a range of between 0.75 and 1 percent. The change sent the stock market soaring, but it also impacted a somewhat less visible slice of the economic pie: debt holders, who are predominantly female, black and Hispanic.

A rise in the federal funds rate boosts interest rates on various types of loans, including mortgages and credit card debt. In December, shortly after the Fed’s second rate increase, the average 30-year fixed mortgage rate hit 4.32 percent, a level not seen since April 2014. On March 9, it rose to 4.21, a high for the year 2017.

Depending on income, average monthly mortgage payments can total anywhere from just under $500 for those with salaries of between $20,000 and $30,000 to nearly $1,700 for those making more than $150,000 annually. That means for Americans with adjustable-rate mortgages, or potential homebuyers who haven’t gotten a mortgage yet, these small percentage changes can add up.

Minorities may have lower homeownership rates than their white counterparts, but black and Hispanic households tend to have substantially lower net worths and are, respectively, 105 and 78 percent more likely to end up with high-cost mortgages, according to a February 2016 study. That was true even when researchers controlled for factors like debt-to-income ratio and credit score.

African-Americans and Hispanic Americans were also disproportionately less confident that they’ll receive approval for non-mortgage credit, a likely indication of higher credit-card and other debt levels among those demographics. As the consumer finance site NerdWallet noted, the effect of a federal funds rate increase on credit debt interest could be costly.

A similar trend can be found in the market for car loans, which are also affected by the federal funds rate. Just over half of African Americans, 43 percent of Hispanics and 38 percent of whites owed money on auto loans in 2015, according to a May report from the Fed. Education debt followed a similar pattern, with 49 percent of black Americans, 40 percent of Hispanics and just 19 percent of whites with bachelor’s degrees owing college debt, the report found. African American and Hispanic borrowers were also more likely to be behind on their loans.

For-profit colleges—on which government restrictions were recently rolled back by the Department of Education—exacerbate that disparity. Their students skew female, minority and low-income, and although they were linked to more than a third of student debt defaults in 2013, they accounted for just 7.5 percent of enrollees at degree-granting postsecondary institutions, according to the Education Department’s statistics center.

Read: Is Trump Good For Education? For-Profit College Stocks Rise Amid Regulation Delay

Women also stand to be significantly harmed by the increase in the interest rate, as 42 percent held more than $30,000 in college debt, compared to 27 percent of men, according to a recent report from the market research company ORC International.

Yellen recently acknowledged these disparities in an early March speech, as did the members of the central bank’s policy arm at a September meeting. Still, consumers can expect two more hikes by the end of the year, bringing the rate up to a range of between 1.25 and 1.5 percent before 2017 is over.