Who Will Benefit And Who Will Suffer From The Interest Rate Spike

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Published by GreenSprout Experts | 07-12-2022

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After the Federal Reserve held meetings from June 14 to 15, 2022, and announced a rise of 0.75%, the largest interest rate spike since 1994, many are worried how this change in the rate might affect them.

Here is a quick breakdown of what areas will be impacted, both positively and negatively, by the rate increase.

Who will be affected?

The US government

As inflation remains higher than interest rates, the US government has been taking advantage of the inflation by paying off previous debts using today's weaker dollar. This has benefited the government by helping to battle the national debt. However, this could quickly change if interest rates rise above inflation.

Savings accounts

One of the few positives from the interest rate spike is that banks will be offering increased returns on savings accounts. Although this rate won't increase as drastically as the interest rates, it is still a welcome benefit for those who keep their money in savings.

Stocks and cryptocurrency

Crypto has already been suffering heavy losses since November of last year, and that downtrend is likely to continue due to the recent rise in interest rates. Likewise, the stock market will also slow as investors reevaluate what value to place on stocks in this post–rate hike environment.

Credit card balances

Most variable-rate cards are closely linked to the federal funds rate, meaning as the interest rate increases, it is likely that credit card rates will also increase. Those with outstanding balances on their cards will face higher costs to pay them off as interest rates rise.

Homebuyers seeking a mortgage

Although not directly connected, mortgage rates will also likely increase along with the interest rate. Expect to see home prices rise and the cost of mortgages increase as the Fed battles inflation.

Homeowners seeking equity loans

If you've pulled out a home equity line of credit recently, you can expect to see your payments rise, and new potential borrowers will see higher rates for a line of credit.

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