Good news and bad news.
News media filled their time slots and print space with negative reports about the dangers and problems of interest rate hikes as the Federal Reserve boosted its target rate for the tenth time in a year.
So while it's true that spenders using credit cards will pay more, it's also true that savers will earn more. The Fed announced that its target rate for money it lends to major financial institutions will now be 5 percent, that means bank borrowers will now pay more. Already, credit card users pay as much as 20 percent yearly on their unpaid bills.
A year ago, savings account interest rates were near zero. That meant it was not worthwhile to save money. Better to spend it and enjoy stuff so you would not have to pay double-digit interest rates on your credit card billing.
Now, however, savings account rates are above 3 percent, and the new change will mean savers will soon see interest rates of 4 percent or more. Compare that to the rate of zero a year or so ago, and it's clear that people will spend less and save more.
As people spend less, the overall economy will recede. And because it has been so overly active recently, it's time for the economy to take a break.
Whether that break period will be overly harmful is another issue.
Every economy moves in cycles. That's a fancy word for ups and down. Moving up too fast can be harmful, as rising prices outpace people's ability to pay them. Fall down too fast is also harmful, because it puts people out of work and they cannot afford to buy food or pay rent.
Home owners escape some of that, because with a fixed rate mortgage, the monthly payment cannot change. And if the house is fully paid for, a rise in mortgage interest rates is not relevant.
By the way, the home ownership rate in America is now about 66 percent, and that has not changed substantially in years. The current mortgage rate applies only to new buyers. A bigger concern is the soaring price of buying a home.
Bottom line for consumers: Interest rates for buyers is rising, and that hurts. But interest rates for savers is also rising, and that helps.
News media filled their time slots and print space with negative reports about the dangers and problems of interest rate hikes as the Federal Reserve boosted its target rate for the tenth time in a year.
So while it's true that spenders using credit cards will pay more, it's also true that savers will earn more. The Fed announced that its target rate for money it lends to major financial institutions will now be 5 percent, that means bank borrowers will now pay more. Already, credit card users pay as much as 20 percent yearly on their unpaid bills.
A year ago, savings account interest rates were near zero. That meant it was not worthwhile to save money. Better to spend it and enjoy stuff so you would not have to pay double-digit interest rates on your credit card billing.
Now, however, savings account rates are above 3 percent, and the new change will mean savers will soon see interest rates of 4 percent or more. Compare that to the rate of zero a year or so ago, and it's clear that people will spend less and save more.
As people spend less, the overall economy will recede. And because it has been so overly active recently, it's time for the economy to take a break.
Whether that break period will be overly harmful is another issue.
Every economy moves in cycles. That's a fancy word for ups and down. Moving up too fast can be harmful, as rising prices outpace people's ability to pay them. Fall down too fast is also harmful, because it puts people out of work and they cannot afford to buy food or pay rent.
Home owners escape some of that, because with a fixed rate mortgage, the monthly payment cannot change. And if the house is fully paid for, a rise in mortgage interest rates is not relevant.
By the way, the home ownership rate in America is now about 66 percent, and that has not changed substantially in years. The current mortgage rate applies only to new buyers. A bigger concern is the soaring price of buying a home.
Bottom line for consumers: Interest rates for buyers is rising, and that hurts. But interest rates for savers is also rising, and that helps.
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