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Are we ready for an interest rate hike?

January 28th, 2016

 

As many of you may know, the Federal Open Trade Committee made a landmark decision to raise interest rates back in December.

 

For the last eight years, the United States has seen nearly nonexistent interest rates, and therefore inflation.

 

However, now the FOMC plans to raise interest rates to about 5.5 percent by the end of the year. They intend to gradually raise rates through three or four smaller successive rate hikes throughout the year.

 

Rising interest rate are usually indicative of an improving economy. The way that I see it, the rate hike could be both good and bad.

 

For some, a raise in interest rates could be very beneficial. Anyone selling their home would like to see a little inflation in the housing market, as it would yield a bigger return on the money. Who wouldn’t want to sell their home, or any object really, for more than they bought it for?

 

Other markets anticipated to benefit from the rate hike include auto makers, retail stores, insurance firms and large country-wide banking firms.

 

On the other hand, raised interest rates could make it more difficult for those that already have a tight budget.

 

In 2015, the west coast primarily saw the highest inflation, with general commodity prices rising by approximately one percent.

 

This increase in prices also increases the cost of living. For those already struggling, a further increase in inflation may be detrimental.

 

Furthermore, over the course of the past eight years, the stock market has greatly benefitted from low interest and inflation rates.

 

Some predict that higher inflation could mean some slight troubles for the stock market.

 

Officials from the Fed, however, have clearly stated that the volatility of the stock market will not change the course of the scheduled rate hikes, as the markets do tend to fluctuate frequently.

 

These statements are in efforts to quell rumors that the Fed may cut rates again after the first one or two hikes due to an unsustainable market. It is the belief of the Fed that the economy is strong enough to withstand the rate hike.

 

I’m not so sure.

 

I take the stance that I’ll believe it when I see it.

 

I would be more than thrilled to see the rate hike as a success, but I can’t help but to wonder about those who will not benefit at all from the raised interest rates.

 

Until more data is collected, it remains to be seen if this rate hike will actually be for the better.