The times of near-zero percent interest rates are coming to an end. The borrower's of the bunch have had a honeymoon recently with rock-bottom rates, but, according to the Federal Reserve, these interest rates are expected to come to a halt in 2022. What this means if you're a pre-retiree or are already in retirement, you should start some financial planning.
Why Rising Rates?
The Fed tries to combat inflation and keep the economy expanding, so when it slashed its primary short-term fed funds to close-to zero in 2020 and doubled up its bond-buying program, it bolstered the economy and took us out of the recession that COVID had plunged us into. These days, the Fed is attempting to cool the economy with a less stimulative policy. This past November saw consumer prices rising 6.8 percent up from last year. Along with this, American unemployment fell to 4.2 percent. The Fed believes that it will increase its key fed funds rate three different times, in quarter-point increments, in 2022, which, it projects, will see the fed fund raite rise to 2.1 percent from 0-0.25 percent in the end of 2024.
Borrower Beware
Expect to pay more in interest on your credit cards in the future, so you may want to double up on your payments and get your debt down. You may also consider refinancing your mortgage for a little breathing room in your budget. In order to be financially savvy, make some small changes here and there to take advantage of increased savings rates, or decrease your borrowing costs, but always keep your long-term stocks and bonds investment portfolio on autopilot. If you borrow money, interest costs will increase if they have anything to do with the Fed's key rate, like adjustable-rate mortgages (ARMS), credit cards, auto loans, and home equity lines of credit (HELOCS). If you already have a HELOC or ARMS, you'd be smart to lock in a fixed-rate mortgage right now before the first rate-hike by the Feds.
To Sum it Up
Ever important it is to keep the higher rates in perspective, and leave your emotions out of your financial decisions. The market may bounce around, but you'll be okay if you follow these simple tips, and it'll all come out in the wash.
* Not financial advice. Be sure to speak to a qualified financial professional.
