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The Fed raised the federal funds rate by 0.75% on June 15th to combat inflation caused by excess stimulus money
This is the largest single rate hike since 1994
The Fed's job is to control the monetary system and prevent economic instability
Higher rates make borrowing more expensive, which reduces demand to match limited supply
Supply and demand imbalances from COVID stimulus created current inflation
Stimulus checks and extra unemployment increased money supply
Higher demand with constrained supply led to price increases
Interest rate hikes aim to reduce demand and restore equilibrium
Credit card debt is particularly vulnerable to rising rates while fixed-rate loans are protected
Credit cards have variable rates tied to the Fed funds rate
Fixed-rate mortgages and car loans won't be affected by rate increases
Suze Orman warns that carrying credit card debt now is 'asking for trouble'
Market volatility follows predictable supply-demand patterns
Stock prices drop when investors sell in fear, creating a downward spiral
This mirrors bank runs during the Great Depression
Markets have historically recovered from every downturn
This is the biggest rate hike since 1994 and that's why it is a lot of people are more in tune with it and is making big news because they took a drastic measure.
If more people have money in their pocket, they're going to want more things because now they can afford more things. And so the demand starts going up.
Now it's not as easy or it's not as cost efficient to get a house or to get a loan or to get a credit card... so then that makes demand start coming down.
If you have credit card debt at this time, you are asking for trouble... credit cards are variable rates. So they can raise them based on the Fed funds rate.
Our jobs are strong. Like there's still a lot of people hiring and stuff like that... I don't think it will be as bad because other economic factors are looking good.
