PROVIDENCE, R.I. (WPRI) — A financial jargon can seem complicated to many people, but the Federal Reserve’s decisions impact all Americans and those around the world.
Interest rates have been low for years, but that’s projected to start to change in a few months.
“At the Federal Reserve, we are strongly committed to achieving the monetary goals that Congress has given us: maximum employment and price stability. In support of these goals, the federal open market committee kept interest rates near zero,” Federal Reserve Chairman Jerome Powell said.
A rise in interest rates can mean we’re in for a stronger economy, but what does that mean for you?
The Federal Government sent out stimulus checks in 2020 and 2021 with the goal of Americans putting money back into the economy.
“The goal was to help people. Many people lost their jobs, so a lot of that stimulus was to allow people to continue to make their mortgage payments, their rent payments, things of that nature,” financial planner Jeff Massey said.
According to Massey, people did spend the money and soon there was a higher demand for products which, along with COVID outbreaks, led to supply chain issues. Inflation was seen on goods from gas to groceries as a result.
The Federal Government also put money into the economy directly, and even did so before the pandemic, which has led to a massive balance sheet.
“Now they need to undo that, and they do that by slowing down the amount of purchases they make each month,” Massey explained. “So by the end of March, they will no longer be purchasing those securities.”
That will likely lead to the feds instead rising interest rates at least twice this year and eventually, that will be reflected in higher mortgage and car loan rates.
“The mortgage rates are anticipated to be up knocking on the door of 4% by the end of 2022,” Massey said. “Now, when you look at that historically, it’s still very low rates.”
Since it likely won’t happen until after March, Massey said the best time to secure the lowest interest rates on a loan would be now.
It’s expected we will see the effects of inflation slow down as a result of higher interest rates because with money not as readily available, people won’t spend as much and the demand for items will go down.
Massey said his advice for those with a surplus of money in the bank, is to always invest it long-term with the goal of growing your finances to surpass the effects of income taxes and inflation on your money.