Happy Holidays, America! The Fed’s early holiday present to the Nation may seem like a gift to some, but a giant lump of coal to others. On Wednesday, Janet Yellen and her team of economic fancy pants raised the key interest rate by 0.25%, bringing the current rate up to 0.75%, signaling only the second increase in the past decade. Since nobody really cares what that actually means, let’s skip the technical jargon and get right into what this means to you and how it might affect you and your decisions going forward.
Q: Is this bad if I’m trying to buy a house, car or something else I probably can’t afford in the not too distant future?
A: Remember how I said some of you would look at The Fed’s decision as a lump of coal rather than a present? If you ignore the fact that I just put a question in the answer section of a Q&A, and instead focus on the very angry face of a young man (yours truly) who just bought a new construction condo not ready until 2018, then spoiler alert: I am NOT happy. Typically when they key interest rate goes up, mortgage and car interest rates follow meaning that sweet new whip you are looking at is about to get that much more expensive. Maybe that used Toyota Corolla doesn’t look so bad anymore. To pile on top of Wednesday’s hike, The Fed has indicated that they could raise the interest rate up to three times in 2017! Perfect timing for ya boy to cement his mortgage as rates hit their highest since I was playing travel soccer and wiping the poop of my Tamagotchi off the screen. [Insert every angry emoji, bitmoji and curse word here.]
Q: Should I continue hiding money underneath my mattress like I do with all my savings?
A: I get it, some people’s investment strategy is to just not lose what they have, although I could think of some safer options for you other than that to stick it under that rad twin racing bed you still sleep on. However, with interest rates rising, that means your traditional bank savings account will actually yield some real American dollars beyond that measly 0.1% you might have been earning or the CD your grandmother put you in. To put that in perspective, a million dollars in a savings bank today would yield only $1,000 per year. All of a sudden, mattresses don’t sound like a bad investment. To reiterate from the last question, rates are expected to rise throughout 2017 so get your spare pennies into that savings account if you are afraid of the stock market and get ready for some higher no risk gains.
Q: Is shit in general going to cost more?
A: The answer to this is a bit tricky, but interest rates tend to rise if The Fed thinks the economy is going to prosper. Now that Donnie Trump is in charge, his economic plan shows a ton of infrastructure spend and slashing of corporate taxes to boost the economy. Therefore, we should expect to see higher demand for goods and services which should drive up pricing on everyday goods. In this expected scenario, The Fed likes to raise interest rates to temper any sort of mass inflation that might occur. Therefore, expect prices to rise as Trump’s economic plan is put in motion. We don’t want to be Argentina…except for maybe in soccer.
Q: What’s gonna happen to the stock market?
A: If I knew the answer to that, I wouldn’t have written this article …
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