Filed Under: Business

After four Fed rate hikes, we have ways to benefit from rising interest rates

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The Federal Reserve raised interest rates four times in 2022, with experts anticipating more on the way. The benchmark lending rate is now 2.25-2.5% after starting the year near zero. Following years of easy money, Americans will have a tough road ahead as the nation teeters on the edge of a recession. There is a lot of doom and gloom in economic circles, but we want to highlight some ways you can benefit from higher interest rates in this week’s Five for Friday.

#5: Lower prices

We start with lowering prices because raising interest rates is the number one tool the Fed has to tame rampant inflation. Higher interest rates mean fewer loans, which results in less capital floating around the economy, in turn slowing demand. This, in theory, will push down prices. Not everyone has faith in the Fed’s mechanism for getting a hold of inflation, but July did see stability in month to month inflation. Overall, it’s a long game and too early to tell.

#4: Better home prices

Rising interest rates are already cooling the red hot housing market. Interest rates near zero gave fantastic mortgage rates, and over the last two years, homes were selling at breakneck speeds and with dozens of people competing for the same property. In turn, values skyrocketed. As you can imagine, higher interest rates do the exact opposite. While home values are still trending up slightly, it’s nowhere near the 25% year-to-year surge of mid-2021. So if you are still on the fence about whether you should take the plunge into homeownership, this should be a less competitive time to buy.

#3: Savings yields

Higher rates aren’t always bad. In fact, it means you can earn more interest on savings accounts. At the start of the year, a decent online savings account would yield roughly 0.5 percent. Today, that same account is pushing around 2%. This is especially beneficial for retirees living on fixed income, who can see their accounts make some money with little effort and no risk. The savings rate in the U.S. hit a record early during the pandemic and if there’s a downturn coming, you’re going to need a nest egg.

#2: Series I bonds

Series I bonds are literally inflation bonds meant as a hedge against rising prices. The yield is set twice a year based on factors related to the Consumer Price Index. And with year over year inflation running near 4 decade highs, I bonds are returning close to 10%. There are a few caveats: You can only invest $10,000 per year and you have to keep them locked away for at least a year. Look, it’s not the most exciting investment strategy on Wall Street, but it is a guaranteed return.

#1: Stronger dollar

Higher interest rates strengthen the U.S. dollar, which gives Americans more buying power when traveling abroad. In fact, the greenback reached parity with the euro in July for the first time since 2002. Last summer, consumers would get around 0.81 Euro for every dollar. So take the opportunity to book that trip to Italy and enjoy the finer things in life. Hopefully your flight won’t get canceled.

SIMONE DEL ROSARIO:

THE FED HAS RAISED INTEREST RATES FOUR TIMES SO FAR THIS YEAR WITH MORE ON THE WAY. AFTER ALL THAT EASY MONEY, IT’S GONNA GET TOUGHER AS WE TEETER ON THE EDGE OF RECESSION. BUT, WITH ALL THE DOOM AND GLOOM OUT THERE, WE’RE HERE TO GIVE YOU THE WAYS YOU CAN BENEFIT FROM HIGHER INTEREST RATES IN THIS WEEK’S FIVE FOR FRIDAY.

LOWER PRICES IS A BIT ON THE NOSE HERE, THAT’S THE PURPOSE OF RAISING RATES. SO, WE START WITH THAT AT NUMBER FIVE. (VO – LOAN APPLICATIONS) FEWER LOANS, MEANS LESS CAPITAL FLOATING AROUND THE ECONOMY, LESSENING DEMAND. THIS, IN THEORY, WILL PUSH DOWN PRICES. WILL IT WORK? WELL, JULY SAW STABILITY IN MONTH TO MONTH INFLATION, BUT IT COULD BE TOO EARLY TO TELL.

THIS BRINGS US TO NUMBER 4! HIGHER INTEREST RATES are ALREADY COOLING THE RED HOT HOUSING MARKET. INTEREST RATES NEAR ZERO GAVE US GREAT MORTGAGE RATES..AND DOZENS OF PEOPLE COMPETING FOR THE SAME PROPERTY. AS YOU CAN IMAGINE, HIGHER INTEREST RATES DO THE OPPOSITE. SO WHILE HOME VALUES ARE STILL TRENDING UP A SMIDGE, IT’S NOWHERE NEAR THE 25% YEAR TO YEAR SURGE WE SAW THE SUMMER OF LAST YEAR.

HIGHER INTEREST RATES AREN’T ALL BAD, IT ALSO MEANS WE *EARN HIGHER INTEREST ON OUR SAVINGS. THAT’S OUR NUMBER 3. AT THE START OF THE YEAR, A DECENT ONLINE SAVINGS ACCOUNT WOULD YIELD ABOUT HALF A PERCENT. TODAY, THAT SAME ACCOUNT IS PUSHING 2% ALREADY! REMEMBER THE AMOUNT OF SAVINGS IN THE U.S. HIT RECORDS DURING THE PANDEMIC, AND IF THERE’S A DOWNTURN COMING, YOU’RE GONNA WANT A NEST EGG.

IS IT GETTING HOT IN HERE? FIRST SAVINGS ACCOUNTS, AND NOW NUMBER 2: SERIES I BONDS. IT LITERALLY STANDS FOR INFLATION BONDS AND IS MEANT TO HEDGE AGAINST INFLATION. SO THE CURRENT RETURN ON THESE IS NEAR 10 PERCENT. THE HITCH BEING YOU CAN ONLY INVEST 10 GRAND A YEAR AND YOU HAVE TO KEEP IT LOCKED AWAY FOR AT LEAST A YEAR. NOT THE MOST EXCITING INVESTMENT STRATEGY ON WALL STREET BUT THOSE GUARANTEED RETURNS ARE LOOKIN’ FINE.

LET’S GO! WE MADE IT TO NUMBER ONE: A STRONGER GREEN BACK. I’M TALKING ABOUT THE U.S. DOLLAR, BENJAMINS, WHATEVER YOU CALL THE AMERICAN CURRENCY. A HIGHER INTEREST RATE STRENGTHENS THE DOLLAR WHICH MEANS YOUR MONEY GOES FURTHER IF YOU TRAVEL ABROAD. (Dollar and Euro VO – With a stamp – PARITY) IN FACT, THE DOLLAR HIT PARITY WITH THE EURO IN JULY. SO BOOK THAT TRIP TO ITALY AND SPEND LIKE IT’S 2022! HOPEFULLY YOUR FLIGHT WON’T GET CANCELED.

SIGH A GIRL CAN DREAM BUT THEN I WOULDN’T BE HERE IN NEW YORK TO TALK BUSINESS WITH YOU! SO I’LL SEE YOU NEXT WEEK, THAT’S YOUR FIVE FOR FRIDAY, I’M SIMONE DEL ROSARIO AND IT’S JUST BUSINESS.

The Federal Reserve raised interest rates four times in 2022, with experts anticipating more on the way. The benchmark lending rate is now 2.25-2.5% after starting the year near zero. Following years of easy money, Americans will have a tough road ahead as the nation teeters on the edge of a recession. There is a lot of doom and gloom in economic circles, but we want to highlight some ways you can benefit from higher interest rates in this week’s Five for Friday.

#5: Lower prices

We start with lowering prices because raising interest rates is the number one tool the Fed has to tame rampant inflation. Higher interest rates mean fewer loans, which results in less capital floating around the economy, in turn slowing demand. This, in theory, will push down prices. Not everyone has faith in the Fed’s mechanism for getting a hold of inflation, but July did see stability in month to month inflation. Overall, it’s a long game and too early to tell.

#4: Better home prices

Rising interest rates are already cooling the red hot housing market. Interest rates near zero gave fantastic mortgage rates, and over the last two years, homes were selling at breakneck speeds and with dozens of people competing for the same property. In turn, values skyrocketed. As you can imagine, higher interest rates do the exact opposite. While home values are still trending up slightly, it’s nowhere near the 25% year-to-year surge of mid-2021. So if you are still on the fence about whether you should take the plunge into homeownership, this should be a less competitive time to buy.

#3: Savings yields

Higher rates aren’t always bad. In fact, it means you can earn more interest on savings accounts. At the start of the year, a decent online savings account would yield roughly 0.5 percent. Today, that same account is pushing around 2%. This is especially beneficial for retirees living on fixed income, who can see their accounts make some money with little effort and no risk. The savings rate in the U.S. hit a record early during the pandemic and if there’s a downturn coming, you’re going to need a nest egg.

#2: Series I bonds

Series I bonds are literally inflation bonds meant as a hedge against rising prices. The yield is set twice a year based on factors related to the Consumer Price Index. And with year over year inflation running near 4 decade highs, I bonds are returning close to 10%. There are a few caveats: You can only invest $10,000 per year and you have to keep them locked away for at least a year. Look, it’s not the most exciting investment strategy on Wall Street, but it is a guaranteed return.

#1: Stronger dollar

Higher interest rates strengthen the U.S. dollar, which gives Americans more buying power when traveling abroad. In fact, the greenback reached parity with the euro in July for the first time since 2002. Last summer, consumers would get around 0.81 Euro for every dollar. So take the opportunity to book that trip to Italy and enjoy the finer things in life. Hopefully your flight won’t get canceled.

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