Interest rates here, interest rates there. Yes. We are guessing this is not the first time you read about interest rates in the last couple of months. And the reason for so is that they are simply incredibly important to control the temperature of economies.
Following the 2008 financial crisis, world central banks were forced to support their respective economies by pushing interest rates to record-low levels, while promoting super aggressive bond-buying programs. Well… it’s been a decade from that and for some regulators, it seems like the right time for putting an end to those conditions.
While nowadays, the European Central Bank and the Bank of Japan continue to insist on maintaining their current policy configurations, others like the US Federal Reserve have already started to adjust interest rates and reduce monetary stimulus.
In its latest monetary encounter, members of the Federal Open Market Committee agreed to keep the benchmark interest rate unchanged in a range between 1.25 and 1.50 percent.
However, despite that was Janet Yellen’s last meeting as Chairwoman of the Federal Reserve, policymakers opted to safeguard her precious hawkish tone on future policy changes. The regulator estimates at least three rate hikes for 2018.
So, in order to get this idea right… what is the impact of rising interest rates on the economy?
Simply put: when the FOMC increases benchmarks rates, it increases costs of borrowing for the banks, which leads to increases of borrowing costs for consumer, which leads to less people asking for credits, which leads to more people saving, which leads to a stronger dollar.
And how can you benefit from that?
It’s always a good time for investing, but for saving… it’s a bit more difficult. If you a natural saver, then rising interest rates will help add a few more bucks to your account, while enjoying of all the benefits of a stronger currency.
In case you have some nasty debts going around… Then it’s time to stretch a bit and say goodbye to them. Higher interest rates, well… it’s pretty clear, isn’t it? Cancel them asap.