How the Fed’s Decision Affects You
85%. That is the probability that the Federal Reserve will raise interest rates after their meeting next Tuesday and Wednesday, according to futures market. In case you’re wondering, the futures market is rarely wrong one week out. So what does this mean for you?
You are probably hearing a lot of talk about the sky falling once the Fed starts to tighten. The stock market has been gyrating like a rapper on Red Bull, which only intensifies this notion. But the truth is that we simply don’t know what will happen.
There are brilliant money guys on both sides of this issue. Former bond king Bill Gross and Forbes columnist Ken Fisher think raising rates will actually be a good thing for the economy. Others, like Jeffrey Gundlach, whose predictions have been incredibly accurate lately, believe it will cause a recession.
I do find it interesting to note that since the Great Depression, the Fed has usually been behind the curve in raising rates, not ahead of it. Our country fears depressions far more than inflations. In other countries, Germany for instance, the opposite is true.
While what happens in the economy does indirectly affect us, the Fed’s decision may directly affect us very soon.
Here’s what you can expect:
- Mortgage and Home Equity loan Rates are going to rise. In fact, they already are in anticipation of the Fed’s tightening.
- Credit card interest rates will rise.
- Personal loan interest rates will rise.
- Unfortunately, interest rates on savings accounts, checking accounts, and CDs may not rise right away. According to bankrate.com, banks are going to pocket the interest for a while.
With that in mind, here are some things you may want to consider:
- Switch to a fixed rate mortgage or home equity loan if your’s is variable. Be aware that fixing a home equity loan usually prevents you from drawing on it going forward.
- Aggressively pay down credit card and other unsecured debt. This would be a great New Year’s Resolution. (More on this in another post)
These strategies are smart moves regardless of what the Fed does.