Forecasting interest rates is a very inexact science, but if the U.S. Therefore, it makes prudent sense to look at your current investments and overall situation and position yourself accordingly. Record-low mortgage rates below 3, reached last year, are already gone. Consumers, corporations, investors, and just about anyone involved in the economic activity of our country may be impacted. WASHINGTON (AP) Americans who have long enjoyed the benefits of historically low interest rates will have to adapt to a very different environment as the Federal Reserve embarks on what’s likely to be a prolonged period of rate hikes to fight inflation. And when interest-rate increases occur rapidly, the damage could be exacerbated. Rising interest rates are rarely a friend to a healthy economy and to the stock market. If this happens it could raise the cost of our exports (because our currency is more expensive)-which will hurt exporters, potentially slow down our economy, and slow the recent wage gains. Of course, many factors impact currency exchange rates, but higher relative interest rates are a key factor. The dollar could rise against foreign currencies. Higher interest rates could attract overseas capital, thereby causing the value of our currency to rise on a relative basis against other countries. This, in turn, increases our accumulated deficits, putting further pressure on interest rates and our economy. Our country will soon have $22 trillion in debt, and even small increases in interest rates could lead to hundreds of billions of dollars more in debt costs over time. While this is good for low-risk savers, if money leaves the stock market for these safer returns, that could lead to stock price declines, which could hurt your 401(k) and other investments. When bond yields and bank interest rates are higher, they more effectively compete with stocks for investors’ capital. In this way, the higher interest expense could trickle into the job market and slow down the economy.īonds and bank accounts have higher yields. When companies must pay more for their debt they don't have that cash to pay workers more or buy more inventory to grow. Now with interest rates on the rise, the cost of that debt on their balance sheets can become more expensive. When interest rates were low, companies loaded up on cheap debt. Companies will also pay more for their debt.
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