High interest rates spell anxiety for borrowers

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This year, banks have been tasked with determining student loan forgiveness alongside their customers, helping people manage mortgages amid roller coaster rates and high inflation.

Laurie Stewart, president and CEO of Sound Community Bank in Seattle and a member of the board of directors of the Seattle branch of the Federal Reserve Bank of San Francisco, joined Kai Ryssdal of “Marketplace” to talk about how rising interest rates affect banks and their customers. An edited transcript of their conversation is below.

Kai Rysdal: So look, what’s the banking vibe in your corner of the country these days?

Laurie Stewart: Well, the mood is definitely about higher interest rates, isn’t it? And while that’s inconvenient for borrowers – there’s a lot of anxiety and talk about what I can afford, whether I’m a consumer or a business – you know, it’s great news for our savers. , and especially senior savers who have been waiting several years to get a return on their deposits.

Rysdal: The last time you and I spoke, we had a whole conversation about how interest rates are actually a business issue for all of you, and how you kind of have to understand what the competition before raising or lowering your rates. That’s still the case, I guess, even with rates that are now as high as they’ve gone, as fast as they’ve gone.

Stewart: Yes exactly. You know, banking is about the net interest margin between what you collect from your borrowers and what you pay to your depositors. And that’s how we pay our staff and our investors and pay the light bill and all those things. But we’ve certainly seen a real increase in demand for deposits, so the rates are now very competitive. And again, if we think about what happened to a mortgage rate, and where it may have gone, maybe it’s doubled. I mean, last week the average mortgage rate was down to 6.61%. So that’s good news.

Rysdal: Of course, but repeat it. This is down at 6.61%.

Stewart: This week, mortgage rates fell, and the average across the country was around 6.61% compared to 7.06% last week.

Rysdal: But look, in January, it was like 3%, right? You would get a 30-year fixed rate for 3%.

Stewart: It’s quite fair. Yes, it’s doubled. But what I was going to say is that deposit rates have more than doubled. They are like 1,000 times higher. You asked me about your mom’s CD the last time we talked. If she called her bank today – at least if she called our bank today, what would have been a quarter percent on a six month CD six months ago is now over 3%. So it’s real money for savers.

Rysdal: I owe my mother a phone call. And also, she’s going to yell at me for talking about her finances on the radio.

Stewart: Ah OK. I am sorry. I apologize.

Rysdal: No it’s OK. It’s OK. What about the home buyers who walk through the door? Do you see demand falling as these rates have risen? I mean, you must have, right?

Stewart: Yes exactly. People can afford less. You know, it’s real money out of your pocket every month. Nevertheless, in our markets where we operate, inventory is still very low. So we haven’t seen much price change compared to what might happen in other markets.

Rysdal: And the same thing, basically too. Let me ask you one more thing, and then I’ll walk away from you and let you take over running the bank. And I’m going to caveat that by saying you’re on the advisory board of the Seattle branch of the San Francisco Fed, right?

Stewart: I’m on the Seattle branch board, yes.

Rysdal: OKAY. That said, I imagine you could probably, if you pulled a few strings, get [Federal Reserve Chair] Jay Powell on the phone. And if you could, what would you say to him?

Stewart: Oh, you know, I’m thinking carefully about my role on this council. Here’s what I think: I think the Fed has been very transparent about the direction it’s taking on monetary policy. And I think they are engaged. Everything we read in this Jay Powell says he is committed to reducing inflation. And we saw a slight reduction in inflation and still good consumer spending.

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