The Federal Reserve just raised its target federal funds rate by half a point today. What does that mean for you and your money? 

If you’ve been watching your 401(k) balance decrease over the past four months, today was a welcomed relief as the market had its best day since November 2020. Recent world events (that we’ll discuss in later blog posts!) have contributed to recent market downturns. Today’s news from our boy J-Pow was gladly welcomed on Wall Street and the red lines turned green.

Let’s explore why.

You probably also noticed that your gallon of oat milk and tank of gas costs significantly more now than it did just a year ago (we won’t even discuss how much your landlord wants to jack up rent). Well, you can thank inflation for that. Inflation skyrocketed to 8.5% in March, a level not seen since John Travolta had Saturday Night Fever (look it up, kids). 

Life has gotten ridiculously expensive for the average American and The Federal Reserve is trying their best to keep the economy moving in a positive direction while controlling inflation. A misstep on their part could lead to a recession.

By increasing the federal funds rate, Americans will feel the effects. Here’s how:

1. Short-term borrowing will become more expensive. Credit card rates are hovering around 16% but could go higher. If you are carrying credit card debt, talk to your bank and see if you can negotiate a lower rate. Ideally, you don’t want to carry a balance month to month. 
2. Mortgage rates are still climbing. A 30-year fixed mortgage will now cost about 5.5%, which is the highest rates have been since 2009. This could mean potential homebuyers will need to reduce their price range to account for the additional interest they’ll need to pay on a mortgage.
3. It’s not all bad though. The unemployment rate is super low which means the job market is still quite robust. Only 3.6% of Americans are currently unemployed. 
4. The stock market reacted positively to the news. If you’ve been watching your 401(k) balance decrease over the past four months, today was a welcomed relief as the market had its best day since November 2020. 

There are a lot of wildcards still in play here. Russia’s invasion of Ukraine is still wreaking havoc in Europe. China’s Covid shutdowns are still causing supply chain issues. Hopefully no ships will get caught in the Suez Canal this year. Fingers crossed. Ultimately, there’s hope this fed rate hike will help bring down the living expenses of Americans and the economy growing.