The Federal Reserve announced an interest rate increase of .5%. This is the largest interest rate increase since 2000. A history of interest rates can be seen at tradingeconomics.com
Why Interest Rates?
The Federal Reserve uses interest rates to either spur or slow the economy depending on what’s needed. Because of the 2020 pandemic and lockdowns, the Fed reduced interest rates to as low as they possibly could in order to encourage borrowing and development.
The side affects of these increases are an increase in demand of real-estate, general investing and expansion of industry. However, long term savers see a big loss in their investments.
As the US economy seems to be inflating so quickly that it is getting out of control, the Fed is attempting to restrict the availability of money in order to slow this sudden monetary expansion.
A Recession coming?
Increase interest rates may slow inflationary expansions, but it may also throw the economy into a recession.
In the first quarter of 2021, the GDP decreased just over 1%. The definition of a recession is two quarters with a subsequent decrease in GDP.
It is a bit of a surprise that the Fed would decide to increase interest rates so quickly, right after this news of a possible oncoming recession. They may be fearing inflation would be significantly worse in the long run.
What can we do?
The data may seem scary and times are certainly…uncertain, but the wealthy are made during times of economic down turn. There are always two states of the Market:
- Everything is going great!
- Everything is on Sale!
Wealthy Idiots is not a financial advisory, so expert opinions and information should always be consulted. However, we will be saving and investing throughout this downturn as much as we possibly can.