What you need to know about rising interest rates
The goal of these hikes is to slow down the economy. This larger increase comes as the economic outlook has changed with many speculating inflation hasn’t peaked yet and is running well ahead of the Fed’s 2% goal. Couple that with a strong labor market, and the Fed has the conditions they need to raise the target range for the federal funds rate. If borrowing is more expensive for people and businesses, fewer investments will be made, which allows inflation to decrease.
Q: WHERE WILL CONSUMERS FEEL THE IMPACT OF RATE HIKES?
Consumers will feel the impact of rate hikes in a few different places. The first is in mortgage rates. If you are looking to purchase a home, interest rates going up means your purchasing power goes down. Mortgage rates hit 6.28%, up from 5.5% in early June. With more rate hikes anticipated this year, if you are considering buying a home or refinancing, don’t wait too long. Consider doing it before rates go up again.
The second place that consumers will feel the impact is in bond investments. Bonds are usually thought of as lower-risk investments compared to stocks. Bonds are a great tool to help you diversify your investments, but they should not be the only tool in your toolbox. Typically, bond rates go down when interest rates go up, so it’s important to know what type of bond you have.
Consumers will also feel the impact in their portfolio. Rising interest rates can contribute to stock market volatility. When there’s volatility on Wall Street, remember to think long-term. Pulling your money from the market based on a temporary dip decreases your purchasing power trying to get back into the market when things go back up.
The last place that consumers will feel a difference is in their savings accounts. Unfortunately, even though we’ll soon be paying more in interest, most of us won’t get any more in interest. The average interest rate some of the largest retail banks are paying their customers is about 0.06%. At this rate, savings accounts aren’t anywhere near keeping up with inflation. A financial professional can help you navigate your investment decisions.
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