What the Interest Rate Hike Means for You
Interest rates have been low for a almost a decade to increase spending post-Great Recession. That's changing and sooner than later. The Federal Reserve plans on raising interest rates three times in 2017, with the first rate hike tentatively scheduled for March. Officials plan on meeting March 14-15 to set rate changes.
The probability of the feds actually hiking the interest rate in March is at 52 percent, according to Bloomberg's world interest rate probability tool. The probability has increased steadily in the last week up from up from 34 percent last Monday and 40 percent on Friday.
The U.S. Federal Reserve decided to raise interest rates for the first time in 2016 and the second time in a decade. The rate increased from 0.50 to 0.75 percent. Feds figure it's a good bet to keep increasing the rate in 2017. An additional 2.25 million net new jobs were added to the job market. People are spending money like they have money to spend and the last rate increase actually helped the economy. Core inflation is up .3 percent, closer to the long-term goal of 2 percent. The cost of consumer good increased .6 percent. Dallas Federal Reserve Bank President Robert Kaplan expects the monetary policy to boost the economy through a ripple affect.
Whenever inflation increases from 2-3 percent in a year, the Feds see it as a sign to increase interest rates. The Consumer Price Index, how much basic consumer products cost in a time period, indicates inflation.A hike in interest rates will decrease the amount consumers have to spend and people are less likely to make significant purchases like a home or a car. When demand is less than supply, the prices of consumer products go down. In turn, inflation decreases.
So how's it going to affect you? Higher interest rates make owning and running a business more expensive. Publicly traded companies could have a decrease in stock value. Stock may be cheaper, hence a less expensive investment, but it's a riskier investment. Bonds and other treasury issued bills are much safer investment when interest rates increase. A mortgage, auto loan or any new loan is going to cost more in the longer run. This is the best time to refinance your student loans for a lower rate, before the interest hikes hit. It's a smart idea to pay that credit card bill as son as possible since most credit card interest rates can fluctuate at any time. Interest will compound on credit card debit relatively fast and that means less shoe money.
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