Spotlight Weekly – The Fed
I’m travelling today, so the weekly update will be brief
But I’d like to draw your attention to the markets. Yesterday the Federal Reserve (Fed), the government entity that oversees the cost of borrowing money, raised interest rates by 0.25 basis points. It’s the 10th rate increase since March 2022.
That’s a lot.
The Fed uses interest rate changes to manipulate inflation. By raising interest rates, they hope to reduce inflation. However, that has an enormous impact on other parts of our daily lives. For example, it now costs more to buy a house. Here’s a chart of the interest rate on a 30-year fixed mortgage:
The last time it cost 7% to borrow money for a house was in 2002.
That will impact home buying and home building. And in turn, that will affect sales at Home Depot, Lowes, etc. In fact, housing contributes about 15% to 18% of the U.S. gross domestic product.
That’s how the Fed will reduce inflation. By making it more painful to buy and build homes. But it should bring prices back down for us…eventually.