What Fed Rate Increases Mean to You

Last week, the Federal Reserve increased the benchmark interest rate once again, this time by 0.25 percentage points to a target range of 4.5% – 4.75%. This was the eighth hike since the Fed started raising rates back in March 2022. The ongoing rate increases can feel quite overwhelming. It is easy to get caught up in the numbers, but what does this really mean for the average consumer? Here are several ways you might see this affect your everyday life.

1. Borrowing costs more. The cost of borrowing money has increased, especially for those who have variable-interest debt, like a home equity line of credit. And it is not just the variable-rate loans. Consumers have also been surprised when they tried to purchase a home or auto with a fixed rate. This is affecting the price of homes and increasing the time to sell a home. If you need to take out a loan for a large purchase, consider delaying. Maybe you can drive your car just a little longer, or opt for home improvement instead of building a new home.
2. Volatile markets. Another area where consumers have seen an impact is in their investments. It feels like it has been quite the rollercoaster ride lately, but why? As the Fed increases interest rates, there is an underlying fear it will greatly reduce any economic growth. On a high level, this is exactly what the Fed would like to do – cool down the current economy. However, much uncertainty exists around how to slow the economy just enough to stop aggressive inflation without pushing us into a recession. This uneasiness can cause greater market volatility. A trusted advisor can help you continue to hold quality investments that are in line with your risk tolerance and financial goals.
3. Jobs. A closely watched indicator for high inflation is job growth. The job market in the U.S. continues to remain robust even though major technology companies have been announcing layoffs lately. The Federal Reserve will be looking for increased unemployment rates as an indicator that economic growth is slowing. If you feel your job could be in jeopardy, reduce some of your variable expenditures and use the additional money to increase your emergency fund. Maybe even delay a family vacation. These choices can be difficult, but planning now could reduce the risk of financial hardship if you were to lose your job.

It is not all doom and gloom. For those who are living off the income from their savings, the last few years have been tough. Before the interest rate hikes, many money market rates were near zero, but it is starting to get much better. According to nerdwallet.com, we are starting to see interest rates slightly over 3%. Now is the time to focus on your emergency fund and the amount of cash you have. It is always a good idea to prepare, especially as we continue to see uneasiness in the market.

As you watch the news or talk to friends about the rate increases, keep a long-term perspective. Make sure you are comfortable with your investments, the level of debt you maintain, and the amount of savings you have in the bank. Now is the time to plan for the worst and hope for the best. Historically, a recession will last, on average, 18 months, but an expansion will last around 39 months. If history holds, this could be something to look forward to!