What does The Fed’s interest hike mean?

What was the problem to begin with?

As COVID-related complications, such as the chip shortage and lockdowns, reduced the supply of goods around the world, the price of goods went up. Remember the good old supply and demand curve drawings you were made to learn back in Econ 101? That’s why!

Now, some inflation is inevitable and a sign of a healthy economy. You see, a “normal” inflation rate is around 2% (according to The Fed), but this is waaay lower than the 8.5% level it’s currently at.

A quick primer: Inflation is the rate at which the price of goods is increasing.

What can be done about high inflation to bring it in check?

Two words: interest rates. The Fed, in the US, has increased the Feds Fund Rate as a means of economic tightening (a.k.a. tough love). Last week, they increased the rate by 0.50%, which seems small, but when you compare the rate today (1.00%) to where it was a year ago (0.25%) you’ll notice that it’s a significant jump. This affects the cost of borrowing money, because the interest rate that your bank will apply on your loans and outstanding credit card payments will now be higher.

What can you do about it?

Get your finances in check! At a time when borrowing is super expensive, consider managing your budget so that you spend within your means, without needing to rely on a line of credit. One way to do this is to use a digital card when you spend so that you can use computer power to help you track your spending.

You can create a bankiom account to get your own virtual card in minutes.

‍