Dan Hernandez, CFP & President; Milestone Wealth Management discusses the Federal Reserve raising interest rates.
Higher interest rates mean higher borrowing costs for firms, businesses and households. Those higher borrowing costs depress consumer spending [and] investment spending by firms and businesses. With the goal being pushing down demand for goods and services.
Mortgage rates and other lending rates will go up.
- If you can’t pay off your credit balance every month, pull back on your credit card spending
- Avoid Adjustable rate mortgages..lock in low rate now..rates will will probably go up more
- Average 30 year fixed mortgage is now 5.55%. End of December it was 3.11%
- Savings rates will go up as well (just not as fast or as sharp as lending rerates)
- Stocks and bonds are often impacted negatively (short term). It cost companies more to do business (impacted by higher rates). Also, from an investment standpoint, as the “risk free” rate of return goes up, the attractiveness of taking risk goes down.
The decrease in Demand usually leads to cut back in production and laying off of employees.