According to Mark Koba, a CNBC.com senior editor, the Federal Reserve, “arguably plays the most crucial role in the U.S. economy,” because it ensures that “the U.S. has a sound banking system and a healthy economy.” Chances are, you are directly or indirectly impacted by the Fed’s decisions.
With the Fed’s comprehensive reach, there are ample reasons why you should care about Federal Reserve interest rates.
You Are Affected by Federal Reserve Interest Rates If:
1. You are looking to take out a loan — any type of loan.
“When the Fed raises the Federal Funds Rate, banks typically follow with an increase in their prime rate,” said Danny L. Buck, president and CEO of Lone Star Capital Bank. This increases interest rates for all types of borrowing.
2. You don’t want your money to lose value through inflation.
When the Fed lowers interest rates, this action “reduces the purchasing power of the dollars inside the pocketbooks and wallets of the folks,” said Oliver McGee, former Clinton U.S. deputy assistant secretary.
3. You want to know when your money has greater purchasing power through deflation.
According to McGee, when the Fed raises interest rates it “creates ‘tight money’ out there,” which “raises the purchasing power due to the scarcity of the dollars.”
4. You want to know how to invest and when not to.
“If interest [rates] rise too quickly, there can potentially be [a] crash in the market from everyone selling their stocks,” said Ari Zoldan, CEO of Quantum Media Holdings, LLC.
5. You buy consumer goods.
According to CoBank, the prices of fuel, food and metal are cheaper when interest rates increase and more expensive when interest rates decrease.
6. You are a potential home buyer.
According to the San Francisco Chronicle, high interest rates lower home prices, while low interest rates increase home prices. Watching the Fed’s decisions and mortgage rates can save you tens of thousands of dollars.
7. You have investments or a retirement account.
According to Fidelity, high interest rates decrease bond prices, while low interest rates increase bond prices. This impacts investments in businesses and your retirement accounts.
8. You save money in an interest-bearing account.
Savers make less interest with lower rates, and more with higher U.S. interest rates.
9. You work or are seeking employment.
According to the Houston Chronicle, the Fed lowers interest rates to spur the economy so that businesses can take advantage of this money to invest and hire more individuals to meet increased demand.
10. You own a business or want to start one.
According to the Houston Chronicle, business owners price goods and services based on supply and demand. Lower U. S. interest rates equal higher priced goods and services, because more spending money increases demand for goods and services.
Clearly, pretty much everyone is impacted by Federal Reserve interest rates. Learning how future decisions and rates impact your own life can save you a little or a lot.
Photo credit: U.S. Government