What the September 2022 Fed Interest Rate Hike and Future Hikes Mean for Your Financial and Retirement Planning

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On September 21, 2022, the United States Federal Reserve raised its interest rate to 3.25 points. The rate increase is the fifth in a series of rate increases in 2022 that, in aggregate, increased the interest rate three points.

Whether you’re trying to save for retirement or if you’re near retirement age, we are here to provide you with a helpful overview of what’s going on with the rate hike and what it means for you to help put your mind at ease with the constantly changing financial times we are living in. We provide the expert wealth and retirement management guidance that clients all over the US have depended on for years. Here’s a brief explanation of what the hike means for you.

Your Guide to the Federal Reserve Interest Rate from the Experienced Financial Advisors in Scottsdale AZ

The Federal Reserve Bank is a “reserve” because it holds a portion of bank assets in reserve. The reserve safeguards the banking system against chaos and bank collapses like the one that ruined many depositors during the Great Depression. 

One of the most powerful tools that the Federal Reserve employs is the Federal Reserve Rate. The Fed Rate is the rate the Federal Reserve pays banks when it holds their money. 

The Federal Reserve raises rates when the economy runs too hot or inflation rises above acceptable levels. If the Fed Reserve raises the interest rate, banks make more money by leaving their money in reserve. They are less likely to lend to each other or will lend at higher rates. 

By contrast, banks will be more likely to lend money if the Federal Reserve lowers the interest rate. The Federal Reserve lowers the interest rate to jumpstart the economy during a recession or after an economic crisis.

Why Did the Federal Reserve Raise Interest Rates?

The historically low interest rates at the start of 2022 resulted from efforts the prior two years to support the economy after the COVID outbreak. Two years later, as the economy recovered, pent-up consumer demand, supply shortages, and increased gas prices drove prices higher. The Federal Reserve raised rates in September 2022 because inflation remained high at 8.3% despite previous interest rate hikes. 

How Will the Federal Reserve Hike Affect Your Life?

Higher rates make it more expensive for small businesses to find the money for expansion, for homebuyers to get mortgages, and for people to finance vacations and large purchases. Americans need expert wealth management; businesses and residents face unique economic challenges.

Tamping Down Inflation

When people postpone large purchases, the demand for goods and services drops. Theoretically, this should slow the inflation rate, but not without consequences. While prices might be lower overall, businesses will have less capital to hire workers, and individuals who need to borrow money might find themselves in a pinch.

Turbulent Stock Prices

Businesses rely on the ability to borrow money to invest in equipment, make payroll, and cope with economic changes. If companies can no longer borrow at affordable rates, they will conserve money and avoid risk. Investors will also hold onto their money and be less willing to invest in stocks, reducing share prices.

Rising Interest Rates

Banks and other lending institutions that issue credit cards set their rates based on the Federal Reserve rate, so credit card rates will increase in the fourth quarter of 2022.

Banks’ rates for auto loans, home equity loans, HELOCs, and other loans will also go up. Existing fixed-rate loans will not change, but adjustable-rate loans will go up to reflect the higher cost of borrowing. With wealth management, Scottsdale homeowners can avoid paying for mortgages they can’t afford.

Weathering Rate Hikes with Wealth and Investment Management Scottsdale, AZ

Pay Off Your Debts

Any credit card debts or adjustable-rate loans will cost more in interest charges going forward. If you have the means, paying off high-interest debts first will help you avoid hefty monthly interest payments later.

Scale Back on Expenses

The intended effect of the Fed’s increased rates is to slow down the economy. It’s best to live within your means whenever possible to help you avoid having to borrow at the increasing rates until they go back down.

Look for Potential Buying Opportunities

The natural inclination of people during volatile financial times is to hold onto what they have and not make any major purchases. However, sometimes during tough financial times, it could be beneficial to look into purchasing new investments. To find out what’s right for you and your specific financial and retirement plan, reach out to an experienced investment management firm such as ARQ Wealth at (480) 214-9572.

Experienced Financial Advisors Here to Help You at ARQ Wealth

Our financial advisors have the experience from guiding clients through good and bad economic times over the last few decades and can help you work towards your financial and retirement goals.

Unlike the competitors who will make you sign several documents before even sitting down with you, we offer a no-cost no-obligation financial planning session. Get started by clicking the link here to visit our website or ARQ Wealth now at (480) 214-9572.

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The opinions expressed in this blog post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. It is only intended to provide education about the financial industry. As always, please remember that investing involves risk of loss of principal and capital. ARQ Wealth Advisors, LLC is a registered investment adviser with the U.S. Securities and Exchange Commission. Advisory services are only offered to clients or prospective clients where ARQ Wealth Advisors, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by ARQ Wealth Advisors, LLC unless a client service agreement is in place. Likes and dislikes are not considered an endorsement for our firm.