Unexpected Benefits of the Federal Reserve Interest Rate Hike

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The Federal Reserve has done a final interest rate hike in 2018. This follows the rate hike in 2015, one that was implemented in 2016, and two rate hikes that occurred in 2017. This final rate hike was voted on by Federal officials and passed with a 7 to 2 vote. The announcement about the hike was made after a two-day meeting by the Fed officials. The rate will increase by a quarter percent in order to hit a target range that lies between 1.25 percent and 1.5 percent.

This does mean that borrowing is going to get more expensive, but it doesn’t mean that all effects will be negative. For one thing, everyone will have the benefit of acquiring better rates when dealing with high-yield certificates of deposit. This is only one example of the gains that are to come. We’ll look at the others throughout this article so you understand how to best take advantage of them.

1. Savers can expect higher returns. When it comes to savings, interest rates have been low for so long that they seem almost negligible. Most people are happy to see any kind of increase being implemented. One group will especially benefit from this is senior Americans who are on fixed incomes, along with those who use interest income as a coverage for living expenses.

2. Inflation will continue to be tamed. Most recent price measurements show that inflation has been a non-factor in the last several years. While the central bank has a 2 percent target for inflation, it has continuously been running short of that. Even with the new upcoming hike, inflation will remain manageable. However, any amount of positive inflation may lead to lower prices for imported goods, which benefits many Americans.

3. Expect to see more lending. With higher interest rates, banks are more likely to loan reserves at higher rates. This additional credit can help to boost economic growth. This is great news as lending has been abysmal since the financial crisis of 2008. Low rate lending will still be available, but it may be more scarce following the rate hike.

4. Retirees will see more interest income. Seniors who have put money into CDs and savings accounts can expect to see larger returns courtesy of the new rate boost. This will be an excellent thing for those living off of retirement savings.

5. Stronger dollar means easier traveling. When there is a strong U.S. dollar, it provides savings to citizens who head abroad. They will have more buying power as the Fed rate boost could lead to a newly strengthened currency.

6. Stocks will see less variation. The Federal Reserve seeks to achieve normalization, which means stock prices will start to make more sense. The focus will turn to market fundamentals, rather than being endlessly based on every Fed statement that hits the news.

7. Potential homebuyers may move forward. As a result of higher rates, you can expect to see higher mortgages. This may push those who are on the fence toward buying a home. Demand will be increased, prices will be increased, and home equity will also increase in one fell swoop.

Based on all of these potential benefits from the upcoming rate hike, not all is lost. Borrowing may cost more, but the many new changes coming in other areas will likely make up for this. No matter your opinion on the final rate hike, there is a lot to think about. Things are certainly changing.