As interest rates are raised again, it’s worth a look at a few down-to-earth effects of the action.
The Federal Reserve raised its Fed Funds rate by 25 basis points to a range of 4.75% to 5% on March 22, making it the highest rate since 2008.
This is in spite of the fact that many investors were hoping and calling for a pause in rate hikes because of the ongoing bank crisis that is spooking Wall Street.
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For many, it sounds as if the Fed action is a distant event, but it is likely to affect many individuals in a number of ways close to home.
As an example, many banks will, in time, offer more lucrative returns on savings and money market accounts.
“A Fed rate hike keeps the upward trajectory on savings accounts, money market accounts and CD rates intact,” said Greg McBride, Bankrate chief financial analyst. “Shop around to get the best returns as the largest banks often have among the lowest payouts.”
Mortgage rates are affected, although indirectly. Since they are largely dependent on the 10-year Treasury yield, mortgage rates tend to follow their lead. As a potential recession looms, the Treasury yields have been falling.
For investors, many stocks have risen in value recently as traders sense an end to the steady interest rate hikes in the not-too-distant future.
“The Fed’s message to investors continues to be ‘the beatings will continue until inflation improves,'” McBride said. “Higher rates and reduced earnings estimates mean additional volatility in the stock and bond markets.”
For variable-rate credit card users, interest rates will increase as a result of the Fed’s decision.
“Credit card rates will mimic this and any further Fed rate hikes, with credit card rates that are already at a record high poised to move still higher,” McBride said. “Prioritize repaying high-cost credit-card debt and utilize a zero percent or other low-rate balance-transfer offer to give those debt repayment efforts a tailwind.”
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