This past week, the Federal Reserve raised the federal funds to a target 3% – 3.25%. This will push up interest rates to their highest point since January 2008. But what does this mean for you and your money?
It will be harder to borrow money
Due to the increase in interest rates, borrowing money will now be more expensive. This will hurt people who are taking out loans for cars, schools, homes, businesses, and more. As such, you’ll want to borrow less money right now and work on paying off the debt you currently have to prevent getting hit with higher interest rates.
But it will be great for savers
The Fed rate increase will hurt borrowers and will likely slow down the economy. Nevertheless, this will be a boon for savers. Interest rates on savings and CD accounts are rising, meaning you will earn more on your savings balances than ever before. But be strategic on where you place your money. Different accounts will have different rates, so shop around before you settle down on one account.
It could trigger a recession
No one likes to here the “r-word,” but it has become a real possibility with this recent rate increase. Raising the rate is the only way to dampen current inflation, but it comes with the risk of a recession. This could lead to layoffs, pressure on the stock market, and financial instability. It’s hard to say currently how bad the recession would be, but you should start building up an emergency fund if you haven’t already.
The stock market will be more volatile
The Fed takes such drastic actions like this, investors tend to panic. As a result, the stock market becomes more volatile. You may want to reconsider your investing strategy, especially if you are nearing retirement. The closer you are to retirement, the better off you would be with conservative investments as opposed to aggressive investments.
At First State Investment Advisors, we can help you navigate the current economy to ensure your investments and funds are protected. Contact us today to learn more about our services.