Over the past years, the Federal Reserve has been slowly inching up their interest rates to help ensure a stronger economy. And those rates are scheduled to continue to rise little by little. Rates were purposefully kept low over after the financial slump our economy faced in 2008, and due to the strength of the economy today, it is time to bring them back up to a standardized rate.
This year, the Federal Reserve raised the 2% rate to a 2.25% rate. They have an additional rise scheduled for the remainder of 2018 and a few more to take place in 2019. According to the chairman of the Federal Reserve, Jerome Powell, the gradual rise in interest rates will help us ensure and sustain a healthy economy. There is a balance between raising them too fast and causing a recession and raising them too slow and in turn overheating the economy, or excessive inflation.
Even though the initial gut reaction is to think that these changes will not be suitable for Americans, there are many benefits to this change. For one, if you are a saver, you will begin to see more substantial returns on your accounts. In the past, it was unlikely that savers would rate shop their accounts, but that is expected to start again due to the increase.
We will begin to see positive inflation, especially of the US dollar, resulting in higher exchange values. This inflation is especially useful for those traveling to Europe, where the exchange rate is somewhat low. There is also expected to be a rise in the amount of lending done by banks as well as increasing the home-buying demand over the next year.
The rise in interest rates will most directly affect credit cards, mortgages, student loans, and other consumer borrowings. Therefore, for spenders in the US, this interest rate hike will not be as helpful. Standard credit card rates will rise from 15% to 17%, and student loan rates will also increase.
While this economic boost may feel like a bad thing, it is actually on course to help our economy maintain the path that it is on. Savers can plan to see more money and spenders should expect to be more cautious with their money. Overall, these are necessary growing pains as we work towards a healthy and stable economy that can last a long time.