The federal government boosted interest rates by three-quarters of a percentage point this week in an effort to slow inflation. It was the biggest increase in 28 years.
They are essentially making it more expensive to do business in the hopes that their actions will slow demand and prices will come down.
So, the economy may feel a bit worse before it gets better. However, as with any economic shift, there are winners and losers. See who benefits and who will suffer more below.
Losers
Everyone in the Short Term
With the interest rate hike, the economy may get worse before it gets better.
Prices are likely to continue to go up for a while. And, the stock market may stutter as we see the impact of the higher interest rates.
Borrowers
Everything from credit card debt and car loans to mortgages (even HELOCs) are about to get more expensive.
You will probably see a higher interest rate on your credit card statements within a month or two.
And, if you are looking to borrow money for a home, the amount you can borrow just went down. Mortgage rates earlier this year were around 3.25%. Today the 30 year fixed-rate mortgage has soared to 6%.
Even businesses who want to borrow money to expand their operations will face higher borrowing costs.
Job seekers
Because businesses will face higher costs, they may slow hiring and it may become more difficult to get a job.
Winners
It is not all bad. There are opportunities in every economy. Here are a few worth mentioning:
Savings accounts
With the interest rate hike, banks will be able to pay higher interest on savings accounts.
CD and Bond holders
Beyond savings accounts, other investments like CDs and bonds are also offering higher returns than those seen in recent years.
I Bonds in particular are a hot investment with interest rates that outpace inflation.
People who can afford to invest in markets when prices are low
Remember the number one rule of investing? Buy low and sell high!
Every downturn is an opportunity to invest. If you have cash available, it may be a good time to put it to work in the stock market.
Everyone in the long term
No pain, no gain! That is the idea with the rate hike. We will need to endure a bit more strain in our economy so that we can rebuild our way out and hopefully return to low inflation and high growth.
We currently have a strong economy and low unemployment so the odds are decent that things will come back stronger than ever without too much trouble.
People with a holistic financial plan
Whether you already have a plan or are just creating one, you will be able to make better decisions about your future and sleep better at night knowing your situation now and ever after.
Let the Boldin Retirement Planner help you see where you stand now and show you opportunities to do better. Get and stay on track to financial wellness.
