AmiSight 4/21: So What the Hell is Happening in the Economy Anyway
As we all know, inflation is at record highs, and the Fed has increased the Federal Funds Rate, with promises to increase it further soon. This has caused interest rates tied to what investors think rates will be in the future (Mortgages, Auto Loans, Corporate Bonds) to increase much quicker than rates more closely tied to the federal funds rate (credit cards, private equity loans). While we know this will slow economic growth, the question is, by how much?
In addition to raising the Federal Funds Rate, the Fed drives up interest rates on bond yields. Typically, when there is an indication that the Fed will raise rates, it triggers the selling of government bonds, increasing their yield. Higher yields also equal higher borrowing costs.
All of this impacts us, not only as consumers but as business owners. Will our clients/customers start to tighten their belts? Economists already see that consumers have higher balances on their credit cards as they try to manage skyrocketing costs and stable wages. Or, will the rise in rates do precisely what it's meant to do and even out our economy? Only time will tell.