An Interest rate hike can have a huge impact on your wealth management strategy. When the Federal Reserve raises or lowers its interest rates, it can impact every aspect of your finances and investments.
A rise in the Federal Reserve’s key short-term interest rate typically makes it more expensive for borrowers to carry debt, such as credit card balances or adjustable-rate mortgages. This can lead to a rise in mortgage refinances and other types of debt repayment as consumers look to lock in a lower rate before it goes up. Private student loan borrowers with variable interest rates may also want to consider refinancing before the Fed starts hiking again.
On the other hand, rate increases can make it more beneficial for savers to invest in savings tools that earn a higher APY (Annual Percentage Yield). These include money market accounts and Certificate of Deposits. With this, you can grow your savings more quickly with less risk.
Historically, when the Federal Reserve raises its key short-term interest rate, it usually means that inflation is high enough to warrant action. Inflation results from demand that exceeds supply, and the Federal Reserve is able to control it by raising or lowering the cost of borrowing.
However, there is a risk that global businesses could suffer from higher interest rates, because it makes their loans more costly and cuts into their profits. This is because businesses need to be able to expand their operations with the money that they get from investors and the banks, and higher interest rates can limit their ability to do so.
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