Federal Rate Hikes and How They’ll Impact Your Wallet

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If you’ve been paying attention to the news, you certainly know that inflation is running pretty hot.

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To combat this, the Federal Reserve has chosen to hike interest rates – specifically, the federal funds rate. But how does that work? And what is that rate?

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Toni Nasr, our guest poster today, is a fintech analyst at Investing in the Web. He is a Chartered Financial Analyst (CFA) and a Financial Risk Manager (FRM) with a background in the banking field and in investment research.

In this post, he’ll uncover what the federal rate hike really means for Americans, why these numbers continue getting worse, how this can impact your wallet, and finally, what you can do about this to make money.

What is the Federal Rate?

Known as the “Federal Funds Rate FFR”, the federal rate is the rate at which banks and other depository institutions lend money to each other on an overnight basis. It is set by the Federal Reserve and it is tracked by everyone, as it is one of the tools available to the Fed to manage monetary policy.

The Fed rate directly affects your wallet on many levels, such as your deposits, loans, credit cards, and mortgages with variable rates. A higher rate is good for savers but challenging for borrowers. And a lower rate has the opposite impact.

As demand increased sharply, prices also rose, fueling inflation. The Fed decided to increase interest rates to control this trend of increasing prices and decreasing demand.

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