Interest rate increase

[LuvOrlando]

Please tell me, from your point of view, how it is exactly that an interest rate increase is going to impact the climbing costs we are seeing right now?

I'm completely fascinated

 

[CaptainAmerica]

Please tell me, from your point of view, how it is exactly that an interest rate increase is going to impact the climbing costs we are seeing right now?

I'm completely fascinated

Higher interest rates make savings more lucrative and debt more expensive, so demand for goods and services declines. Lower demand leads to lower prices.

 

[GAN]

It’s likely there will be additional hikes, so the cumulative affect should start to impact the average person. Usually an increase like this affects businesses or people dealing with financing on a much larger scale …100’s of millions or more. For example, larger projects might be scaled back or eliminated -the impact of these changes slow demand and begin to affect businesses and people down the line. I’m no Galbraith, so I’m sure someone can do a better job than me!

 

[Christine]

This explains it fairly well.

https://money.howstuffworks.com/interest-rate4.htm
So how do interest rates affect the rise and fall of inflation? Like we said earlier, lower interest rates put more borrowing power in the hands of consumers. And when consumers spend more, the economy grows, naturally creating inflation. If the Fed decides that the economy is growing too fast-that demand will greatly outpace supply-then it can raise interest rates, slowing the amount of cash entering the economy.

It's the Fed's responsibility to closely monitor inflation indicators like the Consumer Price Index (CPI) and the Producer Price Indexes (PPI) and do its best to keep the economy in balance. There must be enough economic growth to keep wages up and unemployment low, but not too much growth that it leads to dangerously high inflation. The target inflation rate is somewhere between two and three percent per year.

 

[tvguy]

Higher interest rates make savings more lucrative and debt more expensive, so demand for goods and services declines. Lower demand leads to lower prices.

Yup.

 

[LuvOrlando]

So how does the Fed Rate influence any of this, to your point of view?

 

[GAN]

So how does the Fed Rate influence any of this, to your point of view?

As the rate changes, the cost of borrowing changes. If you pay cash for everything, the increase would actually help you because inflation should slow making products more affordable. If you’re looking to buy a home for $300,000 that costs you $1200/ month, it might now cost you $1300/month. So rising rates may cause some people to not buy, or convince the seller to accept less so it meets what is affordable.

To my point of view, it’s not a great thing. I’ll be at retirement age in 3-years, it’s likely the value of my home won’t increase much in that time and when it’s time to move to a warmer climate I’ll be paying a higher rate which will cost me more. The good side is that any property I’d be looking at should be more negotiable in my favor as the demand will probably be less than it has been. If I want to buy another car with a loan, that car might cost me an extra $1000 over the life of the loan. Things like that…

 

[Cannot_Wait_4Disney]

Fear of interest rate increases caused Iowa to throw up more bricks leading to a deflation of their average points causing them to lose to Richmond.
Long live the Fed.

 

[jrmasm]

So how does the Fed Rate influence any of this, to your point of view?

Mortgage rates were already higher last night.

 

[LuvOrlando]

This helps, how?

Not soundbites, I'm curious of the whole soup to nuts that people feel explains things, how it all works and why it would work or wouldn't. Really, there is a lot involved and we won't know for sure until things land so it's open ended right now, well, at least some of it is.

When I was a kid in the 70's I remember a lot of soundbites so I am always curious of what lays beyond....

 

[GAN]

Fear of interest rate increases caused Iowa to throw up more bricks leading to a deflation of their average points causing them to lose to Richmond.
Long live the Fed.

They‘ve been fearing them for years apparently….

 

[GAN]

This helps, how?

Not soundbites, I'm curious of the whole soup to nuts that people feel explains things, how it all works and why it would work or wouldn't. Really, there is a lot involved and we won't know for sure until things land so it's open ended right now, well, at least some of it is.

When I was a kid in the 70's I remember a lot of soundbites so I am always curious of what lays beyond....

Not exactly sure what you’re looking for but…..

https://www.forbes.com/advisor/investing/fed-raises-interest-rates/

 

[kanerf]

Interest on savings and CDs has not gone up in years and probably won't this time either. I remember the days of 5.25% on your savings account and up to 10-12% on CDs. Never see that again.

 

[RamblingMad]

Mortgage rates were already higher last night.

The Fed Funds rate doesn't directly impact mortgage rates. However, the Fed shrinking their balance sheet and no longer buying mortgage backed securities will send mortgage rates higher.

 

[RamblingMad]

Interest on savings and CDs has not gone up in years and probably won't this time either. I remember the days of 5.25% on your savings account and up to 10-12% on CDs. Never see that again.

I'm now maxing out my I Bonds every year. I make more in the stock market than in a savings account or CDs. Neither of those have returned a real yield since the great financial crisis.

 

[Dan Murphy]

Interest on savings and CDs has not gone up in years and probably won't this time either. I remember the days of 5.25% on your savings account and up to 10-12% on CDs. Never see that again.

Hopefully we never will. The only thing that drove those rates (I recall 16% CD's, because of 13% inflation rate) was hyper inflation.

 

[LuvOrlando]

Not exactly sure what you’re looking for but…..

https://www.forbes.com/advisor/investing/fed-raises-interest-rates/

Thanks, but I get the textbook side of it, I'm way more interested in how people interpret what's going on because THAT will dictate what actually happens, the social side of it is the fuel and I'm just people watching.

 

[GAN]

Thanks, but I get the textbook side of it, I'm way more interested in how people interpret what's going on because THAT will dictate what actually happens, the social side of it is the fuel and I'm just people watching.

There’s nothing to interpret… it’s going to cost you more to borrow money. Im not going to be surprised by what happens so I’m not people watching. Less people will spend money on cars, homes, rv’s, etc …it’s exactly what the fed is hoping will happen. I hope I’m not spoiling it for you!

 

[LuvOrlando]

There’s nothing to interpret… it’s going to cost you more to borrow money. Im not going to be surprised by what happens so I’m not people watching. Less people will spend money on cars, homes, rv’s, etc …it’s exactly what the fed is hoping will happen. I hope I’m not spoiling it for you!

Good to know, thanks.... and here I was reading and stuff, silly me.

 

[RamblingMad]

Thanks, but I get the textbook side of it, I'm way more interested in how people interpret what's going on because THAT will dictate what actually happens, the social side of it is the fuel and I'm just people watching.

Those people are hedge funds and pension funds. No idea what they're going to do.