The Federal Reserve’s decision to raise interest rates aims at slowing the economy without leading to recession. The increase in interest rate will also help counteract the effects of inflation while scaling back other COVID-19 pandemic-era economic supports. According to Jerome H. Powell, the Fed Chair, the Fed is moving expeditiously to restore price stability for both consumers and business owners.
A Sharp Increase in Interest Rates
One of the solutions provided was an increase in interest rate, which is considered the sharpest in two decades and the second of the seven hikes forecasted for 2022. This decision made major financial markets edge higher as investors sighed with some relief, hoping that Fed won’t move more aggressively.
Fed hopes that steady but reasonable interest hikes will help slash inflation, stabilize the economy and promote sustainability of the COVID-19 recovery during this period where uncertainty in the global economy looms. However, these projected interest hikes are likely to have an impact on borrowing rates in the future. As such, the stakes are high for those already struggling to meet the rising cost of basic needs such as rent, gas, and other necessities.
A Ripple Effect on Loans
An increase in interest rate is likely to have a ripple effect on all loans by making money more costly, especially mortgage rates. On the flip side of things, higher lending costs stand a better chance to stabilize the economy.
At least, these higher interest rates will help rein in consumer and business spending, leading to lower prices for basic needs. In this regard, policymakers at Fed need to outline their expectations in relation to the rate hike, particularly now that inflation is dominating the way of life of many families.
In your case, you need to know that Fed is not just increasing interest rates for the sake of financial markets alone. Instead, Fed is making this crucial decision because the general public needs it.
Aggressive Policy Tightening
The Fed is in a precarious situation at this moment due to a shrinking economy, falling inventory purchases, and increasing trade deficits that are causing uncertainty. With that being said, Fed has to implement some of its most aggressive policy tightening, especially at this period when economic indicators are gradually softening. This policy must assure investors and consumers that Fed is making progress in curbing inflation at the right time before things get out of hand. Fed leaders also speculate about imposing more aggressive interest hikes in the future in response to what is currently happening in the economy.
Take Advantage of the Current Lower Interest Rates
If you are looking to secure a loan, this is the right time to do so before more aggressive policies are imposed, which could result in a spike of interest rates. If you are looking to purchase a business and want to determine what your buying power is, and the cost associated with a business purchase, we here at PPT can help.