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What Rising Interest Rates Could Mean to the Average Individual

In September 2016, the U.S. Federal Reserve decided not to raise interest rates, instead keeping the U.S. central bank’s target range for the federal funds rate at 0.25 to 0.5 percent.

The Fed stated that they did not raise rates for a variety of reasons including the fact that the labor market is strengthening and that inflation is remaining low.1

And while the conditions under which the Fed would raise interest rates haven’t transpired, it’s still good to take a look at what happens when interest rates rise and what it means to the average investor.

  1. Mortgage Rates Rise: Those looking to get locked into a lower mortgage rate would look to act quickly. If mortgage rates rise, the housing market could slow down.
  2. Savers May Have an Edge: High interest rates mean savings accounts can earn more, but a consumer would have to pay more for any loan they want to take out, most likely including credit cards.
  3. Your Credit Score Can Become More Important: Working on improving your credit score can help you maximize your buying power. Since you’ll be able to qualify for lower rates, you’ll possibly be able to counteract the rate increase.
  4. Stocks Could Become Volatile: A Fed rate hike could make stocks less attractive to investors. It would also raise interest rates on U.S. bonds, which are considered safer investments.2
  5. More Jobs: A rate hike means that the Fed is confident in the job market, which has seen its lowest unemployment rates in nearly a decade. Raising the interest rates is a good sign that the economy is healthy.

Interested in what interest rates mean to your financial goals and future? Be sure to contact Steel Valley Investment Group of Raymond James at 610.709.9715.

1. http://www.theatlantic.com/business/archive/2016/09/fed-fomc-sept/501020/
2. http://www.msn.com/en-us/money/personalfinance/what-would-higher-interest-rates-mean-for-you/ar-BBlA38c

Views expressed are not necessarily those of Raymond James & Associates and are subject to change without notice. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Investing always involves risk and you may incur a profit or loss. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices rise.

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