Interest rates appear to be moving higher. But I don’t know if we should be applauding or booing the move. It seems like higher interest rates will impact different people differently. Am I correct?
- you are
- the two groups are savers and borrowers
- savers in financial assets like CD’s and money market funds will benefit
- but, savers in the stock market may not, and savers with existing bonds that now have below market rates will not benefit
- borrowers are also hurt – costs more to borrow
- but two footnotes – first, interest rates are still historically low
- second – if inflation rises, can take away part of negative impact of higher borrowing rates – because usually means assets like homes will gain more in value