The Federal Reserve took powerful aim at surging inflation by raising interest rates for the first time in nearly two decades. That, combined with a plan to shrink the Fed’s bloated balance sheet, will dramatically change how consumers and businesses pay for products like food, gas and investment securities.
When the Fed raises its target rate, banks pay more to send and receive money from one another, and then pass those costs on to consumers in the form of higher rates on credit cards, mortgages and other loans. It’s designed to curb price increases and spur economic growth by reducing the incentive to spend, while encouraging savings and investment.
But higher interest rates also make it more expensive for companies to expand, potentially cutting into profits. That could make things even tougher for a global economy already grappling with an earnings recession.
Generally, stock prices rise on news of the Fed’s rate hike, as investors view taming inflation as good for companies and the economy. That’s why it’s important for everyone to stay informed about what the Fed is doing and consider working with a financial advisor as they position their investments, savings and borrowing to handle inflation and rising interest rates.
If you’re paying a variable interest rate on a student loan or credit card, now is a great time to switch to a fixed rate. At SoFi, we have a variety of fixed-rate loan terms for you to choose from. Apply today to lock in a low, fixed interest rate before rates go up further.