When we hear “rising interest rates” we wonder how this a good thing… how would high interest rates help curb inflation?
The more money it costs to borrow something, the less attractive that thing will be to a borrower or purchaser. There are some purchases the majority of people won’t pay cash for and would choose to finance, such as a car or house.
When interest rates are lower, the more car you can afford. Same with houses. If you have a set monthly payment in mind, you may be able to afford a bigger or more expensive house due to lower interest rates.
However, with higher interest rates, that same house or car payment could double. This changes the initial game plan. Maybe you have to consider waiting to purchase the house or save up for a larger down payment.
The higher interest rates will slow economic growth, but in the Fed’s eyes, this is a good thing. They want to slow it down. This will help bring in price stability – so people stop overpaying for houses or vehicles.
Image and article originally from thebrownreport.com. Read the original article here.