The Effects of Rising Interest Rates on your Life
the shrinking money supply and what it means for everyday life.
Good morning people wishing to become more financially literate.
If you haven’t heard yet, the U.S.’s central bank: The Federal Reserve. It has committed to increasing its federal fund rate to help combat inflation. Raising rates faster than any time in the recent past.
But how do these rates affect your life, the rest of America, and what you can do to stay debt-free when money becomes more expensive.
What Are Interest Rates & Why do they Matter?
Interest rates are the price of borrowing money. It is the amount that a lender charges to borrow money for a certain period of time.
Central banks and other monetary authorities use interest rates to control inflation or the rate at which prices increase over time. When interest rates are high, it becomes more expensive to buy goods and services because prices will also increase. This can lead to less spending, which in turn can reduce inflationary pressures in the economy.
Interest rates matter because they influence how much people spend on goods and services, as well as how much they save for retirement or emergencies. For example, when interest rates increase, it becomes more expensive to borrow money or get a mortgage. This can have an impact on housing prices and make it difficult for people to buy houses.
What Effects you will Most likely Feel.
For one, if you have any credit card debt, now would be the time to get on top of that. This is because, for every 0.5% bump, the federal reserve gives the prime rate. Credit card companies will adjust their rates by 1-3% in correlation; they do this because the money they have to borrow becomes more expensive, deeming a higher lending risk.
Another will be student loans. Again, before you freak out, the chances are that you will not be affected. The only rates that will change on your student loans would be private loans with an adjustable rate. All subsidized loans by the government are fixed and won’t be affected.
Lastly, the tightening money supply makes it not only harder for us to lend but harder for businesses as well. That’s bad because when extra funds dry up, one of two things happen. Either the cost is passed on to the consumer causing a wage-price spiral, or the company will seek to reduce its workforce to meet the slowing demand across the country.
So far, we haven’t seen a mass layoff in the U.S. workforce, but time will tell. I wish everyone the best out there. Have a great day and remember to live in the moment.
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