The Federal Reserve decided in March to increase the federal funds rate by 0.25%. With inflation at its highest levels in forty years, the Fed is attempting to slow demand, thereby easing inflation, by increasing the cost of borrowing money. They are expected to continue raising rates throughout the rest of this year. So how will these increases impact you?
First, the goal of increasing rates is to help cool down the economy and ease inflation. This will be welcome news for anyone struggling to keep up with the rising cost of groceries and gas. However, the Fed wants to do this slowly to avoid stalling the economy or causing recession. So don’t expect your grocery bill to drop overnight.
What’s more, the Federal Reserve rates impact every kind of borrowing, from credit cards to mortgages. So if you’re planning on taking out a loan this fall, you can expect to pay a higher interest rate than you would today. If you’re considering a loan in the next year, be mindful of where rates are. If you’re getting a mortgage, ask your mortgage officer about locking in your rate.
There is some silver lining, though. Higher rates should also translate into higher savings and investment yields. That’s exciting news. Although, those yields usually trail increases in other areas, so it may take time before we see those changes.
One of my grandfather’s rules of life is that “prices go up.” Hopefully, the Fed’s moves will make prices go up slower than they are right now.