How The Federal Reserve Affects You
San Francisco, CA (March 15, 2023) —
The Federal Reserve has been in the news recently. And because many people aren’t aware of how the Fed’s decisions, including rate hikes, impact their daily lives, I thought I’d pull together some information on how these decisions trickle down to your and my everyday financial situations.
Borrowing, Saving, and Investing
Generally, when the Fed raises the overnight borrowing rate, borrowing money becomes more expensive, making it more difficult to obtain mortgages, credit cards, or other loans. On the other hand, higher interest rates can also lead to higher returns on savings and investments, which rewards those who have saved and invested wisely.
Although mortgage rates are not directly tied to the Fed’s interest rate, they typically reflect the sentiment of the Fed. As the concern grows that the economy is expanding too quickly, you’ll see the federal interest rate and mortgage rates rise—and vice versa.
Credit cards, auto loans, and HELOCs
Credit cards, auto loans, and home equity lines of credit (HELOC) rates are all tied to the prime rate—the rate banks charge preferred customers with good credit. But there’s a catch. The prime rate is based on the federal funds rate, so when the Fed raises its benchmark interest rate, the prime rate typically goes with it.
With that brief overview noted, if you have questions about recent Fed actions or your financial well-being in 2023, please don’t hesitate to reach out. We are always here as a resource in Seacoast NH, San Francisco CA, or wherever else you may be thanks to the miracle of zoom.