What Federal Reserve Raising Interest Rates Means

As you may already know, the Federal Reserve made a decision on December 14th to raise interest rates by .25% effective immediately. The brightened outlook for the economy has also had an impact on rate forecasts, and Fed officials are expected to raise rates again next year by another 0.75 point.


What does this mean for you? Several things actually:


1.      Rates you are currently paying on variable rate loans will increase and your monthly payments will go up. This will have a direct impact on monthly cash flow and profit.


2.      The cost to borrow money for future purchases will be higher than it is today. If you are on the fence about a purchase before the end of 2016, you need to take into consideration the added expense of waiting until next year when rates should continue to rise.


3.       Higher rates will mean less borrowing power. You may not be able to afford the purchase or project that you had in mind because the monthly payments will not fit your budget.


As you can see in the graph below, the federal funds rate has been at an all-time low for quite some time now, hovering between .25% and .50%. Now, with the interest hike, the federal funds rate is going to be somewhere between .50% and .75%, which means banks and financing companies will have to charge a higher rate to their customers. Rates are also scheduled to keep going up over the next few years as well.

source: tradingeconomics.com

So now what?


If you have any projects you were thinking about doing, now would be the time to do them. With interest rates on the rise, and the end of the year looming, securing finance for a business purchase has never been a better idea. You will be able to use any purchases you make by end of year as tax write-offs, and you will secure a lower interest rate than if you were to wait until after rates raise again.

Give us a call today to learn more about how we can lock you in at a low rate today, before rates continue to climb.