The Federal Reserve raised interest rates by 0.75-percent, which is the largest move made in a single meeting in 28 years. The central bank says that further interest rate hikes will come this year as the Fed attempts to slow faster-than-expected inflation. This comes at a time when gas and the price of goods grew over 8.6-percent from last year. Dan Geltrude, Managing Partner at Geltrude & Co., joins Cheddar to break down what this all means for Americans' wallets. 

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How Rising Interest Rates Affect Americans Households

here to discuss. This is dan gill Trude and he is the managing partner at Gil Trude and company. Thank you so much for joining us. And we want to start off by just explaining to people how the Fed hike works exactly. And what is maybe intended for it to do to our economy. Sure. So when the Federal Reserve is raising the interest rate, what it really means is they are establishing the rate in which banks borrow from each other. Okay, Because banks need to keep a certain amount in reserve and sometimes when they don't have enough in reserve, what they'll do is they'll borrow from another bank. So the banks borrow back and forth from each other. So when those rates go up it becomes more expensive for banks to borrow. But here's the thing, it has a ripple effect, not just in what happens between banks, everything else starts to react to that. For example, people with credit card debt, you're going to start to pay more in the payback period because interest rates are going to go up. If you have a mortgage that is an adjustable rate mortgage, what's going to happen? The rate is going to go up and therefore your monthly mortgage payments are going to become more expensive. So dan, you're naming these things real quick. How soon are we expecting this to take place? They said they were going to raise it yesterday. At what point can we see that trickle down to the credit cards and the mortgages. Oh, that's gonna be very quickly the markets, the, the borrowing market are going to react very quickly. So we're going to see people paying more right away and and the point I wanted to make before to remember our government also borrows money. So it's gonna get more expensive for our government. How does the government pay back through taxes? So this may end up having a situation where these rates going up lead to us paying more taxes. Oh, don't say that it's bad enough as it is now, you're gonna add taxes onto it. Okay. So how does this hope to, I guess, impact the economy because I know people are already hurting because of inflation paying more for gas, food, everything. So how will this help that? Let's keep this in mind. You know, there's a lot of people out there saying the Federal Reserve, they've got to raise interest rates. This does not come without consequences, it's not just that the Federal Reserve raised the rate and then inflation goes away. What the Federal Reserve is trying to do here is called what's a soft landing. So they're trying to tame inflation, bringing inflation down without disrupting the economy. Very, very, very difficult to do. So what they're doing now is they're raising it, seeing if inflation reacts doesn't work, raise it more and that's what their plan is because inflation has to come down. It is too damaging. Even with the consequences were going to have with rising interest rates. It has to be done. It's an unfortunate situation and I hate to say it, but there's more pain ahead for all of us. So it sounds like it's gonna get worse before it gets better. What about for those people that are investing? Do you see the latest interest rate increase as an appropriate way to maybe avoid further downturns in the stock market? Well, the stock market is probably going to continue to feel the pain also why I, because his interest rates are going up, it becomes more expensive for companies to borrow money to gain the capital that they need to be able to function. So what ends up happening is it impacts the bottom line of these corporations? Ultimately, that leads to less value in the market, on top of that as interest rates go up elsewhere outside of the stock market, investors start to look and say, well, there's very little risk and a pretty good return on our money. So maybe it's time to start pulling our funds out of the stock market, which again leads to more hurt in many people's world. One case. So, again, I feel like I got all this bad news today, but it is what it is alright to help some people out generally, what should people keep in mind when planning their financial decisions during a time like this? All right. So the good news here is if you're one of those people particularly retirees or people who really like the safety of having your money in the bank, this is really good news because now you're gonna be able to put funds away and be guaranteed a decent interest rate with basically no risk. You have, you have your investments that are gonna be federally insured. So, you know, for a lot of people this will work out to be a good thing, but, you know, anything that happens with interest rates, there's winners and there's losers. So in this particular case, if you like safe investments, this isn't that opportunity to be able to put your money at again, at a decent rate with relatively no risk. Okay, well, you know, there are a lot of people out there literally trying to decide whether they should buy, should they rent, what should they do in this market, and if they do decide to hold off, maybe they'll wait till next year to buy and maybe the home prices will be lower, the interest rate, maybe may bounce back. How long are we expected to see these increases in these rates and how long will it until it comes down? Well, the interest rates are gonna continue to go up until inflation is tame to some degree. So for the foreseeable future, this is the market that we're in. And for real estate right now, it's it's very, very interesting because when people are buying a home, what do they look at their monthly payment now? Interest rates and prices of homes have an inverse relationship, meaning when interest rates rise prices of homes come down because again, you can only afford so much per month. However, we are in a very unusual cycle. There is so little inventory of homes, we actually have interest rates going up and the price of homes going up. So things are getting really expensive. What does that mean? It means people are gonna start going to the rental market. So as the rental market demand goes up. So will the price of renting. So I would tell people if you if you're seeing that you're not gonna be able to afford a home, get that rental locked in now because I think rental prices could very well be going up for a period of time here. Okay. Yeah, you were a bear of a lot of bad news but there hopefully will be some light at the end of the tunnel for us and at least you did warn people get the rental property. Now, if you can pay off those credit cards now if you can before it gets a lot worse than we get hit with more of these price hikes. So. Alright, dan, managing partner Gail shooting company, thank you so much for joining us this morning