Are the federal interest rate hikes working?

Last week, the federal reserve raised interest rates three-quarters of a percentage point in their fifth hike this year. Financial professional Barry Bigelow from Great Waters Financial joins us to discuss if the fed’s rate hikes are working and how we can capitalize financially on higher rates. 

The goal of these hikes is to slow down the economy by making borrowing more expensive for people and businesses. Fewer investments will be made, allowing inflation to decrease.The Labor Department released its latest report saying the consumer price index increased 8.3% from a year earlier.

The Fed has raised interest rates five times over 2022, and they are expected to continue raising the benchmark in order to reach its 2% target inflation rate.

If you are looking to purchase a home, interest rates going up means your purchasing power goes down. Mortgage rates recently hit 6%, the highest since 2008. With more rate hikes anticipated this year, if you are considering buying a home or refinancing, don’t wait too long. Consider doing it before rates go up again.

Rising interest rates can contribute to stock market volatility. When there’s volatility on Wall Street, remember to think long-term. 

If you pull your money from the market after the temporary dips, you decrease your purchasing power when trying to buy back into the market as soon as it begins to go back up. 

Barry says, “At Great Waters Financial, our comprehensive financial plans focus on removing the risk of an unstable market. Our goal is to make sure when our clients retire, they stay retired, regardless of what’s happening on Wall Street.

Bonds are usually thought of as lower-risk investments compared to stocks. Bonds are a great tool to help diversify your investments, but they should not be the only tool in your toolbox. Typically, bond rates go down when interest rates go up, so it’s important to know what type of bond you have.

Saving for the future is often put on hold when money is tight due to inflation increasing the costs of goods and services.  

Historically, the stock market reacts almost immediately to interest rate hikes, and higher rates usually have a negative impact on stock prices and earnings. 

It’s important to continue putting money into your 401(k) or other retirement accounts and capitalize on down markets by purchasing investments for a lower price and reaping the benefits when the markets go back up. 

Great Waters Financial recommends saving 5-10% of your income for your golden years. If you have questions or want to learn more about planning your financial future, visit greatwatersfinancial.com or follow up on Facebook and LinkedIn.