There is so much talk about the Fed raising interest rates. Expectations are that the Federal Reserve will raise the cost of borrowing between banks 2 times in 2019. Other than incoherent tweets originating from our nation’s capital, what are you supposed to make of this news? Let me break it down in simple language that even the tweeter-in-chief can understand.
Rising Interest Rates = Very good for savers.
If you are a person who wants/needs a substantial amount of money in a safe place, rising interest rates are great. Some money markets are paying over 2% interest! Also, if you plan to buy an income annuity, start a pension payout, or buy new bonds, you will benefit from higher interest rates.
Rising Interest Rates = Very bad for spenders.
If you are carrying credit card debt, expect your minimum payments to go up. If you are looking to buy a house with a new mortgage, your payments could be higher. And, if you are wanting a business loan, those costs will go up.
Rising Interest Rates = Who Knows?
For the stock market. There is no way to know how the stock market will be affected long-term by rising interest rates. Some say the Fed raising rates is a sign the economy is healthy and can absorb higher borrowing costs. That should make the stock market happy. Others say more expensive borrowing costs will slow capital expenditures and be a drag on the market.
Only time will tell, but interest rates are a small part of what drives overall stock market returns. As with all hysterical headlines, I encourage you to focus on what you can control – your saving and spending – and not worry about the rest.