Market's Reaction to the Standard and Poor's Credit Downgrade

The market's reaction to the Standard and Poor's credit downgrade may be just the beginning. The financial impact could stay with us for months to come, making almost anything we do, buy or consume, more expensive.

That prospect actually has some people in the Bay area making big financial decisions now.

For example, as the Chief Financial Officer of her family's Tampa-based business, Patricia Evans decided now is the time to buy the fleet vehicle they've been shopping for.

"We would have to pay that higher interest rate, unfortunately," she says of the possible rate-hike. "We're small business owners, so we only have so much allocated for vehicles and income and payroll."

Evans knows that the S&P credit downgrade for the U.S. government from AAA to AA+  means higher interest rates may be on the way. 

So the same vehicle, even at the same price, could cost a few dollars more a month to finance in just a few weeks.

"With the economy, a few dollars a month makes a big difference these days," she says.

It was the same thing for Traci and Mark Meng, signing papers on a new home in Port Tampa. No longer on the sidelines, the couple decided to do the deal now, to avoid an interest rate hike.

"Yes, we rushed this weekend to go ahead and close the deal," said Traci.

"The door opens up, you gotta walk through it for opportunity. You've got to," added Mark, "Unfortunately the economy isn't gonna get any better, it's gonna get worse."

Conventional wisdom has it that the downgrade to U.S. debt could increase interest rates by as much as a .5% over the next few weeks.

Mark Zandi, an analyst with Moody's Investments, thinks it may even be a bit less.

"I don't think rates would rise overwhelmingly, but they would rise," he says.

So what does that mean on a bigger purchase?

On a $200,000 home loan, a .5% rate hike is more than $60 a month, $720 a year, or $21,000 more in total payments over the course of a 30-year loan.

Higher rates also mean higher costs for products and services as manufacturers pass along the higher cost of borrowing to their customers.

Credit card debt, or any debt with variable rates, could also rise.

Student loans too. 

And with less expendable income to buy goods and services, that, say economists, will likely slow the economy further, leading to fewer jobs. 

The non-partisan group "Third Way" estimates a half point rate increase will eliminate 640,000 jobs at a time when the nation's economy can least afford it.

One small, silver lining could be dramatically lower prices at the pump. 

The global slowdown had traders speculating on a lower demand for oil, pushing oil prices below $81 a barrel in Monday's trading.

If it stays there, it should translate to gasoline prices well below $3 per gallon.