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Interesting News
Last week, the Fed decided to raise the national interest rate by 75 basis points and continues to signal that inflation is running hot within the U.S. That update alone has a lot to unpack. Let’s jump in by defining a few words.
The Federal Reserve System (FRS) is the central bank of the United States. Often simply called the Fed, it is arguably the most powerful financial institution in the world. - Investopedia
You’ve heard of the Fed but they’re the United States’ central bank and impact the economy at the stroke of a pen through monetary policy. Let’s define 75 basis points.
Essentially, this decision is the equivalent of a .75% increase in the national interest rate. No big deal, right? You might think this is a tiny number at less than 1% but you’d be wrong. An increase like this hasn’t happened in 20+ years.
How This Impacts You
Interest rates signal a shift in how you should be spending your money. For example, the Fed essentially tells you that it’s in your best interest to save money rather than spend. Saving will combat rising inflation as the market seeks a new equilibrium between supply and demand.
Interest rates will impact your mortgage, credit card debt (which you should be paying off in full each month), and car loan. As interest rates continue to increase, you might want to make a move soon or wait until rates decrease (which could be for a long time).
Here’s a video from the Economist on the topic:
Some Strategies to Think About
Save more and utilize rising interest rates (given your level of risk) by shifting money into a High-Yield Savings Account
Invest more to maximize a stock market in decline. This might hurt in the short-term but could change your life once the economy bounces back
Given my current financial situation, I’m saving for my wedding in February but plan on investing more once those expenses are paid off. One quote I heard this week was, “Recessions are how millionaires are made.”
If you want to dig deeper, give a read to the Vox article here. These policies hurt Americans not earning enough by leaving them behind in the race to fight inflation.
Have a great week,
Jordan