Last week, the Federal Reserve increased interest rates for the fourth time this year, hoping to slow economic growth and ease inflation. But what do these rate hikes mean for the average consumer – especially women and minorities – who have been hit the hardest during the pandemic?
Over the last two-and-half-years, women left the workforce in droves and their employment has still not fully recovered. According to the Bureau of Labor Statistics, women were short by almost 400,000 jobs in June compared to February 2020.
A quarter of mothers reported that they reduced their hours or did not work at all because of childcare disruptions during the pandemic, resulting in significant financial losses, according to the Federal Reserve.
Prof. Paula Cole, an economist at the University of Denver who focuses on gender and inequality, told Know Your Value the already present financial gap between men and women could impact women’s ability to weather these rate hikes and borrow money.
“Women tend to end up with higher interest rates when they go to borrow money because they are not as financially stable because of that wealth and income disparities,” she said. “And so already, they’re facing slightly higher interest rates than their male counterparts, regardless of their income tiers.”
While there has been generational progress in narrowing the gender gap across the country, that growth has stalled amid the rising cost of living, the ongoing pandemic and the economic consequences of conflicts abroad, according to the World Economic Forum.
In addition, if the economy does slow down in response to the rate hikes – specifically the labor market — Cole said that could have a disproportionately negative impact on women.
“Once again, because of the wealth gap in earnings, it’s just harder for women to be prepared to be laid off because they’re less likely to have savings in the first place,” she explained. “[This is] because of the type of work they do, the gender wage gap, the care responsibilities that they have in the home for children and the elderly.”
While the potential for at least one more interest rate hike looms in September, here are a few key money tips to help mediate the heat of higher prices going into the fall:
The time is now to know – and pay – what you owe.
While the cost of borrowing will only rise with interest rate hikes, credit expert Sara Rathner at NerdWallet said it’s imperative that women reign in their budget.
“That can help you, first of all, identify expenses that you can cut pretty easily from your budget without really noticing and that frees up your cash … [to] help you figure out, how do I choose to spend money?” she told Know Your Value. “Sometimes it can be a matter of swapping one habit for another and it can make a pretty big difference over time.”
NBC News senior business analyst and MSNBC host Stephanie Ruhle recommended prioritizing debts first – including paying down credit cards in full, not just paying the interest. “You want to try to take control of your finances [and] know what you owe,” she said. “Write it all down and try to start chipping away at it.”
Rathner said this is especially important for women, who tend to have lower credit scores than men, according to research from the Federal Reserve. “It could be as simple as just making sure that you pay every bill on time every month, including rent, utilities, credit card and other loan payments as well,” she said.
Take advantage of the hot labor market.
Ruhle added that now is the time to get back into the workforce – or make moves – while the labor market is still hot. That way, women can take advantage of its perks before higher interest rates potentially slow business growth.
“While the going is good – getting a new job, asking for more money, asking for more from your boss – do it,” she said. “This is a good moment to be the worker, not necessarily the employer.”
Explore other options.
During a time when there is so much economic uncertainty, it can sometimes be overwhelming to know what financial action – if any – to take next. The good news is you have other options.
Both Rathner and Sarah Foster, an analyst at Bankrate.com, recommended looking into a balance transfer card with zero percent interest, depending on your situation. “You have to obviously compare the fees of transferring that balance over,” Foster explained. “But if you have a pretty significant balance, it could help you.”
Use higher interest rates to your advantage.
Yes, there is a silver lining amid the spike in interest rates: savings accounts become more valuable! When rates go up, these types of accounts benefit, especially high-yield ones.
“If you have a current savings account, find out what interest rate it’s paying, what APY (annual percentage yield) you’re getting out of that account, and see if there’s anything better out there because it’s so fast and easy to apply for a new bank account,” Rathner said. “It can make a really big difference in how much money you earn through interest every year.”
Be proactive, not reactive.
Although this time could prove to be stressful and anxiety-inducing, Rathner said it is not wise to make big financial or money decisions in an emotional frame of mind.
“It’s important not to hear this news and assume the sky is falling. Because if you operate under that assumption, and you’re anxious all the time, it’s actually going to have a pretty negative effect on your decision-making,” she said.
Similarly, Ruhle advised women consumers to be proactive, not reactive during this complicated economic time.
Haley Messenger
Haley Messenger is a producer at NBC News covering business and the economy.