The most common discussion with clients recently has been about interest rates (and bonds) as interest rates have been rising swiftly as of late.
It’s a popular topic because interest rates impact our lives in various ways; rising interest rates causes bond prices to fall, rising interest rates means things purchased with borrowed money cost more (houses / mortgages, autos / auto loans, credit cards, etc…), future cash flows from investments / projects become less valuable, etc… 30-year mortgage rates have doubled to over 5% from 2.5%
On the other hand, rising rates also motivate us to save more as savings vehicles yield more and motivate us to take on less debt / pay down debt faster. When’s the last time we’ve earned any notable interest in our checking and savings accounts? Many young people probably don’t even realize that banks used to pay interest on those checking and savings balances. Continue reading “On Interest Rates: The Federal Reserve is in a Difficult Position”