Federal Reserve Announces First Interest Rate Hikes of 2022
On Wednesday March 16, the Federal Reserve announced the first of 7 planned rate hikes in 2022. In an attempt to fight the nations sky high inflation rates, the Fed announced a raise of 25 basis points (or .25%) for overnight rates. This is the first raise we've seen since 2018. What does the rate hike mean, and how might it affect us? Let's talk about it.
As we all know, the US economy has been experiencing soaring inflation rates for nearly the past year. Today the Fed announced the first of many interest rate hikes, a tool the Federal Reserve uses to help us combat inflation (You may have heard of this as "Monetary Policy"). You may be wondering what a rate hike is and how it's going to affect us, so let's break down what this means to us as a consumer. First let's talk about "what is a rate hike?" An interest rate hike is an action the federal reserve takes which raises the interest rate that big banks charge when borrowing money from each other. This rate is often referred to as the "Overnight Rate" as banks typically borrow and lend each other money in the overnight market. The banks in turn pass this cost on to us as a borrower by raising our interest rates when we take out a line of credit.
Today the Fed announced the first rate hike at 25 basis points, meaning when banks borrow from each other, they charge .25% for the lending of the money overnight. As a consumer this means we're now facing higher interest rates when we go to get a loan or use our credit cards. When our interest rates go up as a consumer, we are less inclined to take out a loan, this promotes less spending overall, and thus lowering the demand, and cost of everyday goods. While over time this may save us money at the grocery store, it doest cost us more in terms of paying back our loans/lines of credit.
Wrapping Up
The Fed has planned between 5-7 rate hikes in 2022, meaning we could see the overnight rates reach a target rate of 1.5% by the end of the year. While we thought the Fed would be a little less aggressive due to unrest overseas, it's apparent that they plan to meet the rising inflation rates head on. As a consumer this means two things, be on the lookout for rising interest rates, and over time watch the affect these hikes have on our national inflation rate. Hopefully the steps initiated today will lower our bill at the grocery store in the future.
Tanner Millar
Investment Advisor - Core Planning
tanner@yourcoreplan.com
(660)-998-4639
https://www.yourcoreplan.com/disclosures