General Discussion
Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsHelp me understand: Why does the raise in interest rates help us?
If you are wealthy, the raise(and another proposed raise)punish those who are most affected by the rise in rates. If you have substantial funds, it probably does not bother you but for those of us with limited means, this is a punishment. Bank loans, car loans, Reverse Mortgages...anything that involves 'interest' will put those of us with limited means in a worse situation.
I can't understand why the raise is a help to the economy, especially to the millions who live month to month on limited funds. Pay your bills and have little left for the rest of the month.
Live on Social Security, it is not possible.
It seems to me that a lower rate that would encourage spending would be a bonus. More sales for stores, less money out of our pockets to use on the next expense.
ret5hd
(20,435 posts)inflation vs interest rates
both hurt the same people you describe in the short term, but interest rates can be lowered in the future. Prices...not so much.
Raise interest rates: lower inflation rates
My admittedly amateur understanding.
jimfields33
(15,475 posts)Right now those dollars dont go far especially for fixed incomes. This will help.
Johnny2X2X
(18,745 posts)It reduces demand on big ticket items, thus lowering prices.
But it's a long term strategy, we should have started the process in 2021. What we are doing now will have the most effect in 2023.
Fiendish Thingy
(15,369 posts)Or at least cools inflation.
This is significant especially for two big ticket items, homes and cars, although the effects may take months to be seen, as demand cools.
Lower rates indeed stimulate spending/increase demand, which causes prices to rise/inflation. Between emergency low interest rates and COVID stimulus money, the economy heated up quickly, unemployment dropped to record lows, and inflation not seen since the early 80s returned.
Of course, during inflationary cycles, some industries/corporations take advantage and Jack up prices beyond the rate of inflation, gouging consumers.
Its a cycle, with trade offs.
Wages are slowly increasing, and Social Security should see one of its bigger COLA increase next year (announced in September, takes effect in January). Recent reports suggest the next COLA increase could be as high as 9%.
HariSeldon
(452 posts)The solution for inflation that causes the least collateral damage is raising taxes (including effectively collecting taxes otherwise omitted) on the wealthy. But the Federal Reserve does not have power over taxation, so they try to use the power they do have to increase misery (by increasing unemployment) and fear via increased interest rates. This will, supposedly, cool of the economy and moderate inflation.