Federal Reserve Talks Interest Rate Hikes

Federal Reserve Talks Interest Rate Hikes

It had to happen eventually, folks, but why now? An interest rate hike would help and hurt a lot of people.

It had to happen eventually, folks.

The biggest reason, so I'm hearing, for the dip in the DJIA yesterday was simple: someone over at the Fed was making noises about a hike in interest rates. A full percentage point, in fact.

Considering that rates have been hovering around zero for some time now, this doesn't exactly come as a shock. Oh, sure, it's a surprise--it represents the fundamental reversing of a course we've been on for years now, and that's always a surprise--but we all pretty much knew it had to happen one day.

Now, what this means is several fold, and explains why stocks took a hit.

One, rising interest rates improve bank yields. If you've got a savings account, or an interest-bearing checking account or what have you, you know that the rate is pretty low. Disastrously low. Why-should-I-even-bother low. But if the baseline rate goes up--which is what the Fed controls--it's generally a boost to bank products.

Two, rising interest rates make it harder to borrow money. For everyone. Including the US Government, which is borrowing cash at positively epic rates. And the more expensive it gets to do so, the more GPD has to be used in debt service. So will that slow down the frantic pace of borrowing? This move may actually be in aid of that. People have been loaning us cash at bargain basement rates for a long time now--they're probably looking to get a bit more ROI than they're getting now.

Savers get rewarded? The government can't borrow cash so freely? Something unusual is boding here and I have to admit I'm disconcerted. Why now, Federal Reserve?

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