Interest rates, oh interest rates, how we wish you were low forever. But this is not the reality of how interest rates work. And soon, interest rate hikes may grow higher and higher.
During the start of the pandemic, rates were lowered to help grow the economy. If interest rates are low, more people are likely the make purchases using their credit cards or buy homes.
Now that inflation has pushed our economy to the brink, it is expected that interest rates will grow as well. Inflation is at an all-time high, growing more in one year than the previous 30.
It is predicted that interest rates will be raised 3 times during the year 2022. Some people predict that as soon as March hits, rates will begin to climb. They feel the economy has recovered enough that it is time to begin the rate hike.
What Causes Interest Rate Increases?
Interest rate increases are caused by supply and demand. The more people need or want credit, the higher the rates are. The fewer people need or want credit, the lower the rates are.
With the distribution of stimulus checks and government aid during the beginning of the pandemic, people didn’t need as much credit. They were more mindful of their purchases and had the extra cash to buy their necessities.
Now that the government has stopped funding its people, they are back to a new sense of normalcy. Applying for credit and such as they would have before. This means it is time for rate hikes.
Is Inflation A Threat To Our Economy?
Inflation has risen 7% during 2021, and there are no signs that it is stopping anytime soon. Most experts claim that prices will not go back to pre-pandemic levels, and this is our new normal.
Some experts believe that prices will continue to climb well into the year 2024, and with current rates of inflation, that could be devastating for some communities.
Because of the high inflation rates, the cost of rent and other goods are through the roof. These prices are making the average person look for other means to have sustainable living.
What Happens If Interest Rates Increase Too Fast?
If they increase too fast, it could impact the global economy. Many believe it is risky and could be a better solution to keep them low for a while.
Central banks set a standard for rates that are used for loans and debts. When rates skyrocket, fewer people will meet the demand of purchases. Higher interest rates mean a higher cost of goods, and when an economy is already struggling it can be hard to keep up.
Keep In Mind
With high levels of inflation, comes various unforeseen financial drawbacks. We must increase interest rates in order to keep the supply chain satisfied. When we keep rates low for a prolonged amount of time it can hinder the growth of the economy.