The Federal Reserve is in the middle of a rate hike campaign to try to tame record-setting inflation. This means the cost of borrowing is going up, which can sting consumers and businesses who take out loans to buy things. The hope is that stifling inflation will slow consumption and business investment which could help bring prices back down and avoid an overheated recession.
This is the first time that the Fed has raised rates by 0.75 percentage points in consecutive months, and it’s a big deal. It’s also the biggest increase in the target rate since the 1980s.
While increased interest rates aren’t great for borrowers, it does mean that savers can earn higher returns on their savings tools such as money market accounts and certificates of deposit (CDs). Credit unions are already starting to offer more competitive APYs during this period.
It will take time for these rate hikes to “bake” into the economy, so it’s not yet clear how they’ll affect your financial life. But if the trend continues, it’s a good idea to pay down your highest-interest debt before it becomes too costly to do so.
Another thing to keep in mind is that the impact of Fed rate increases doesn’t just happen locally, it often has a global ripple effect. This is particularly true of oil-related interest rate moves, which can reverberate across global markets as demand for energy falls. This can be a double-edged sword for emerging economies that are transitioning away from fossil fuels, as it can limit the amount of capital they’re able to attract.
