No matter where you are in the US, Canada, or the rest of the world, you would have heard the phrase “hiking interest rates” in a news story. Since last year, interest rates have been rising. When interest rates fluctuate, it has an immediate impact on how consumers and businesses can obtain credit to make required purchases and organize their finances. A rise in interest rates impacts the Prime rate, which banks use to grant loans. A higher rate means that your bank will lend you money at a higher fixed or variable rate.
Inflation is a primary motivator, according to the respective Banks/Feds of the various countries. They are raising interest rates in an attempt to combat growing inflation. Why inflation is so high is a topic for another day. What I wanted to discuss in this article is what it means for your investment and what the most recent interest rate news is.
What is the latest on interest rates?
After the Fed signaled that it would soon go for rate hikes and tighten the monetary policy at its first policy meeting in 2023, stocks gave up on the initial gains made on Wednesday. At its upcoming policy meeting in March, the Fed is reportedly working to raise the federal funds rate, according to Powell.
Additionally, he stated that “quite a bit of room” existed for rate increases before they began to harm the labor market. Additionally, he said that because “inflation risks are still to the upside,” prices could continue to rise for a longer time. Powell, however, emphasized that lawmakers have not yet made a decision regarding the course of monetary support.
Policymakers will instead wait until the next few sessions to decide how to raise interest rates and then devise a strategy to “substantially shrink” the Fed’s almost $9 trillion balance sheet, according to Powell.
In Canada, the Bank of Canada has lifted its benchmark interest rate to 4.5 percent. Economists broadly anticipated the move as the bank attempts to bring record-high inflation under control.
The bank has increased its trendsetting rate for the eighth time in less than a year. However, at one-quarter of a percentage point, it is the smallest boost since March, indicating that the bank may be done raising rates for the time being. At a news conference following the announcement, governor Tiff Macklem used the word “pause” to describe the bank’s current monetary policy plan.
What does this mean for investors?
Higher interest rates can impact borrowing costs, investment performance, and savings rates. A higher interest rate may result in larger interest payments over the life of the loan.
Rising interest rates are an unpopular decision with all consumers, and most of the companies are adverersly affected by rising rates. Higher interest rates imply a higher borrowing cost, whether for a home, a vehicle, or other purposes.
Increased interest rates can potentially harm the economy. If they grow severe enough, they might cause a recession that affects the labor market. Despite rising interest rates, so far the labor market is continuing to remain solid. With recent layoff news, let’s see how long this last.
