Ever since the recession some 8 years ago, the Fed has kept the benchmark interest rate at almost zero so as to help strengthen the economy. But, as per minutes from a Fed gathering in October, the rate increase is most likely in a few days.
Such economic changes usually come with both good and bad news. Here are some things which may just get effected by this rate increase:
A rise in interest rates will put downward pressure on home demand as well as prices at least right now. Not many people are going to be selling homes if the rates go up. For anyone who is planning to sell their house, this may be a sign to panic. But if the increase is a small one, it shouldn’t cause the housing market to plummet again.
There is no denying the fact that bond prices usually move in the opposite direction of interest rates. Whenever interest rates rise, bond prices fall. So if you want to sell your bonds before maturity, these high interest rates aren’t suitable for you. But if you want to keep them until they mature, you will be able to sleep well at night.
The effect on stock prices is murkier than bonds. Stock prices usually fall from interest rates rise. But this isn’t always the case. During economic expansion, stocks usually go up with interest rates. But if an overheated economy is being cooled down by increased interest rates, stocks go down before they rebound.
Income and Employment
By keeping interest rates low, the Fed hopes that they will be able to encourage economic growth which is usually measured using employment numbers. If the rates rise, it will show that employment is improving and more firms are hiring. And more hiring obviously means more income.