What might this mean for you?By raising interest rates, the Federal Reserve continues to work toward its goal to bring down inflationary pressures at the risk of kicking off a recession. As the cost of borrowing increases this should theoretically cool off economic activity and thus inflation. However, these efforts do not take hold overnight and must be given time to trickle through the economy. As a result, it’s likely that you’ll see higher financing rates for things like auto loans, credit cards, student loans, mortgages and elsewhere.
Financial moves in a high-interest rate environment
- Look for opportunities to eliminate high-interest debt: Pay down debt and pay yourself instead. There are several steps you can take to overcome credit card debt, including establishing a budget and sticking to it, choosing a debt repayment strategy and negotiating with creditors.
- Move excess cash into higher yielding vehicles like money market funds: It’s likely that your checking and savings accounts are not paying you very much interest. Understand your options in terms of money market funds, CDs and treasuries. Read more about Safe Alternatives to Savings Accounts.
- Ensure your deposits are FDIC-insured: Ensure you're banking with a reputable provider which provides FDIC insurance. That way, your deposits are protected up to $250,000 per depositor.
ConclusionWith the Fed having raised interest rates for the ninth time since March 2022, consumers can continue to expect higher financing rates for big ticket purchases like car loans and mortgages. In the meantime, individuals can focus on paying off high-interest debt and moving excess into higher-yielding vehicles like money market funds.