An Interest Rate Hike is NOT a Bad Thing!

Blog posted On November 01, 2016

Last week, the Q3 GDP went up 2.9%, the largest gain since mid-2014.  These numbers were influenced by a stimulus in consumer spending, growth in imports, and unplanned demand for exports due to a poor South American harvest.  Widely regarded as the national “economic scorecard,” these gains are good news for the economy in its entirety.  

With a Federal Reserve Announcement coming tomorrow, rate hike rumors are circulating.  However, higher interest rates are not necessarily detrimental.  Savings account will yield higher returns, inflation will be subdued, and more lending opportunities will present themselves.  

Alan MacEachin, corporate economist with Navy Federal Credit Union, explains "Rising interest rates would benefit elderly Americans on fixed incomes and others who rely on interest income to help cover their living expenses.” Alan MacEachin, corporate economist with Navy Federal Credit Union.  Even a modest interest rate increase will improve earnings on savings accounts.

Interest rate hikes can help curb the negative effects of inflation.  University of Michigan’s assistant research scientist Daniil Manaenkov listed some rate hike benefits like, “lower prices of imported consumer goods, due to a likely higher exchange value of the dollar if our domestic rate increases are not matched by policy tightening in other major economies.”

In relation to the housing sector, interest rate hikes improve lending scenarios.  Banks are more likely to issue loans when interest rates are higher.  According to Bankrate, economic growth has fallen below forecasts and an uptick in lending would improve the national economy. 

The Federal Open Market Committee meets tomorrow, but most economists are predicting the rate hike to take place after December’s meeting.  

Sources: CNBC, BankRate, MarketWatch, Time, HousingWire