What is the Federal Reserve raising interest rates? What does raising interest rates mean?

Dec 09,2022
What is the Federal Reserve raising interest rates? What does raising interest rates mean?

Higher interest rates generally raise borrowing costs. Therefore, any consumption financed by loans, such as the purchase of houses, vehicles or continuing education, will be affected. As the Federal Reserve raises interest rates, the prime rate will rise, which will soon result in an increase in the monthly interest payments on current debt generated under the 7 (a) plan. So, what exactly is the Federal Reserve raising interest rates? What does raising interest rates mean? Next, let's have a look.

What is the Federal Reserve raising interest rates?

The Federal Reserve raises interest rates, which means that the Federal Reserve Management Committee decides whether to raise interest rates after holding an interest rate meeting in Washington. To put it simply, raising interest rates is a tightening fiscal policy. The Federal Reserve responds to the current economy by raising interest rates. Generally, the interest rate increase can increase the bank interest rate, thus reducing the money supply, and the dollar will increase in value.

The increase of interest rate by the Federal Reserve represents the strength of the U.S. economy, which will cause a large amount of global money to flow into the United States. Investors can invest in the U.S. market in many ways, resulting in a rise in the U.S. dollar. Some bulk commodities, precious metals, and foreign exchange markets denominated in U.S. dollars will fall.

What does raising interest rates mean?

This means that the interest rate of well-known financial products such as credit cards, mortgages and savings accounts may rise. Because the interest rate has been low all the time, many customers, especially Millennials and Generation Z, do not remember the period when they could not afford to borrow and the savings selection basically did not pay any fees.

Economic downturn is more likely to occur after interest rate increases. Many analysts believe that the probability of economic decline in 2023 (defined as a continuous decline in economic behavior in a few months) is getting higher and higher as interest rates continue to rise to curb borrowing.

The more interest rate increases, the higher the profit margin of the financial sector. When the economy goes up, brokers' trading activities generally increase, but when interest rates rise, their interest expense will also increase. As the economy expands and interest rates rise, industry, brands and retailers may also perform well.

As interest rates rise, borrowing becomes more expensive. When the Federal Reserve raises borrowing rates, consumers and companies may experience higher borrowing costs, which may prevent them from buying directly. A higher credit interest rate means that you will spend a lot of money on items at last, and may even prevent you from making some purchases.

Experts said that the short-term price adjustment is expected to continue because of the sharp interest rate increase. Since the beginning of 2022, there has been a high relationship between stocks, digital currencies and other risk assets.

One of the things that shocked the cryptocurrency market in particular was the Federal Reserve's interest rate hike in June. The cryptocurrency market has been in the "digital currency winter" mode, with prices falling across the board. Since the bull market reached its peak last year, the prices of BTC and Ethereum fell by more than 70% in June.

According to Edward Moya, a senior market analyst at Oanda, investors are paying close attention to BTC, Ethereum and the whole digital currency field to find "a potential retest of the June low".

Speaking of this, I believe you have a certain understanding of what the Federal Reserve raises interest rates and what it means. In general, with the increase in interest rates, borrowing will become more expensive. When the Federal Reserve raises borrowing rates, consumers and companies may experience higher borrowing costs, which may prevent them from buying directly. A higher credit rate means that you will eventually pay more for the items, and may even prevent you from making some purchases. They are not so active to the crypto community.