Rates Raised…. Again…

Afternoon Bathroom Browser,

In a recent move, the Federal Reserve increased its benchmark interest rate by 0.25% on Wednesday and indicated the possibility of further rate hikes later this year. This rate adjustment brings the fed funds rate, the central bank’s policy rate, to a new range of 5.25%-5.50%, the highest level observed since March 2001. The decision was unanimous, and the Fed’s statement highlighted its intention to assess the impact of prior rate increases on the economy and financial conditions when considering future rate adjustments. The Fed’s statement emphasized the Committee’s consideration of various factors in determining the appropriate extent of policy firming to achieve the 2% inflation target. Federal Reserve Chairman Jay Powell, during a press conference, acknowledged that achieving the inflation target may require a period of below-trend growth and some softening of labor market conditions. Despite a cooler reading on inflation in June, the Fed continues to view inflation as “elevated” and remains vigilant regarding inflation risks.

The Fed upgraded its assessment of the economy, now characterizing growth as “moderate” compared to “modest” in the previous meeting. Economic indicators have indicated expanding activity, robust job gains, and a low unemployment rate. However, inflation remains a concern. The Fed’s expectations for inflation have risen, with projections suggesting a year-end inflation rate of around 4%, up from the previous forecast of 3.6%. On a “core” basis, which excludes food and gas costs, inflation rose 4.8% over the prior year in June, while including food and energy, headline inflation increased 3%.

Regarding future rate hikes, Federal Reserve Chairman Jerome Powell clarified that the Fed hasn’t decided on a specific pattern and will assess each meeting individually, making decisions based on prevailing economic conditions and data. All of this has strong impacts on various financial tools in your life. This is good news for high yield savings accounts but unfortunately makes borrowing money that much more expensive. See the breakdown below:

Impact on Checking and Savings Accounts – For those with checking and savings accounts, the rate hike means the potential for increased interest rates on deposits. Interest-earning checking accounts have seen modest improvements, while savings accounts, especially high-yield ones, have experienced higher returns, with some reaching close to 5% APY.

Consider Money Market Accounts and CDs – Money market accounts, offering better returns than standard checking accounts, can be further leveraged to earn higher interest. Additionally, certificates of deposit (CDs) are expected to earn more due to the rising interest rates. Creating a CD ladder strategy can help optimize returns on mid-term savings.

Loans and Mortgages – On the downside, higher interest rates influence borrowers, leading to increased costs for personal loans and variable-rate student loans. However, the latest plan from the Biden administration, SAVE IDR, may offer relief for those with federal student loans. For homebuyers, mortgage rates have surged, and while the Fed doesn’t directly control them, they may follow a declining trend if inflation eases.

Credit Cards – Credit card interest rates have already risen during the rate-raising cycle, surpassing 22%. With the continuation of the current monetary policy, these rates are likely to further increase.

All this news can sound daunting but as interest rates rise, you can weather the storm by optimizing savings with high-yield accounts, strategizing with CDs, evaluating debt carefully, and staying informed about Federal Reserve announcements. Proactive financial planning will help navigate the impact of increasing rates and ensure a stable financial future.

Taking care of business,

The Throne Master