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Biggest winners and losers from the Fed’s interest rate hike

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Summary

The Federal Reserve recently announced that it would raise interest rates by 0.25 percentage point, pushing the federal funds rate to a target range of 5.25 to 5.5 percent. This is the 11th rate hike of this economic cycle and is an effort to reduce liquidity and tamp down inflation. Winners and losers from the Fed's decision include savers, borrowers, stock and bond investors, and credit card users. Savers may benefit from higher yields on savings and money market accounts, though rates may not have much further to rise. Mortgage rates remain high, but the 10-year Treasury yield has fallen as investors prepare for a recession. Bond yields are high, but investors should consider locking in longer maturities on CDs. Variable-rate credit cards will increase in rate and borrowers with floating-rate debt will see higher rates. The US federal government will also be impacted by higher borrowing costs.

Q&As

What was the Federal Reserve's decision following its July 25-26 meeting?
The Federal Reserve announced that it’s raising interest rates by 0.25 percentage point, following its July 25-26 meeting, boosting the federal funds rate to a target range of 5.25 to 5.5 percent.

What is the current 10-year Treasury note yield?
The 10-year Treasury note is now well below its 52-week high of 4.33 percent, which was hit in October 2022.

How have higher interest rates impacted the housing market?
Home prices are more expensive and the financing is pricier, resulting in a slowdown in the housing market.

How do higher rates affect stock and bond investors?
Higher rates should slow growth and therefore corporate earnings, if not create an outright recession. Higher rates hit bonds hard, and the longer the bond’s maturity, the more it’s been stung by rising rates. However, with a rate pause last month and investors now anticipating an end to the Fed’s aggressive tightening, the bond market has been finding a floor on prices.

How have credit card rates changed due to the Fed's decision?
Many variable-rate credit cards change the rate they charge customers based on the prime rate, which is closely related to the federal funds rate. The Fed’s decision means that interest on variable-rate cards will ratchet up quickly. Rates on cards are already at multi-decade highs and have risen as the Fed sharply raised rates.

AI Comments

👍 This article provides a great overview of how the Fed's interest rate hikes affects different areas of the economy, such as savings accounts, mortgages, stocks, and bonds. The article also offers useful tips for consumers looking to take advantage of the rate hikes.

👎 This article does not provide enough detail on how the rate hikes will affect borrowers with existing loans. Additionally, it does not provide any advice on how to protect oneself from the potential risks of a recession.

AI Discussion

Me: It's about the implications of the Federal Reserve's decision to raise interest rates by 0.25 percentage point following its July 25-26 meeting. It looks at the winners and losers from the Fed's decision, such as savers, mortgage holders, stock and bond investors, borrowers, and credit card holders.

Friend: Interesting. So who are the biggest winners and losers?

Me: The biggest winners are savers, who will benefit from higher interest rates on savings and money market accounts. The biggest losers are borrowers, who will be hit with higher rates on loans and credit cards. Investors may also be affected, as higher rates could slow economic growth and corporate earnings.

Action items

Research the best online banks and credit unions to maximize savings account and CD yields.
Compare rates on HELOCs to find the best rate.
Investigate Series I bonds as a way to protect against inflation.

Technical terms

Federal Funds Rate: The interest rate at which banks lend to each other overnight.
Inflation: A measure of the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.
10-Year Treasury Note: A debt obligation issued by the U.S. government with a maturity of 10 years.
Prime Rate: The interest rate that banks charge their most creditworthy customers.
Annual Percentage Rate (APR): The annual rate of interest charged for borrowing, expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan.
Series I Bond: A type of savings bond issued by the U.S. government that is designed to help protect against inflation.