Hi Reader!

Today, I want to talk about a topic that affects every single one of us: the Federal Reserve's interest rate hike.

You’re seeing all of these in the headlines, but what does it all mean for you and your money?

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First, let's start with the basics. The Federal Reserve, also known as the "Fed," is the central bank of the United States. Its role is to promote a strong and stable economy so it keeps an eye on several economic indicators, such as unemployment, consumer prices, and gross domestic product (GDP). They have many tools at their disposal to ensure a stable economy and one of their main tools is setting the federal funds rate.

The federal funds rate is the interest rate at which commercial banks charge each other to borrow money overnight. By law, banks must maintain a reserve equal to a certain percentage of their deposits in an account at a Federal Reserve bank. This ensures banks have the money to cover depositors' withdrawals and other obligations which ensures stability.

The federal funds rate is one of the most important interest rates in the U.S. economy. It affects broad monetary and financial conditions, which in turn affects your purchasing power, your debt, your job security, your investment portfolio, and the overall sentiment and direction of the economy.

Whether you realize it or not, every aspect of your finances is subject to the Fed’s influence.

When I was finishing up my Economics and IT degree from Rutgers back in 2005, the Federal funds rate was fairly low at around 3%. This allowed me to finance a brand new car at a very low rate allowing me to save money on interest. Since then, the fed fund rates have been at all time lows which made borrowing, investing, and spending easier and inexpensive to do.

Today though, rates are rising and this will be the first time many of us will see the impact of The Fed's interest rate hike. It's something we need to pay attention to as it will greatly affect our lifestyle moving forward. Here are the top ways the interest rate hike affect our money:

• Increases the cost of borrowing money which means short-term loans will be more expensive
• Reduces our purchasing power which means our dollar won't buy as much
• Increases volatility in the stock market which means we will see a lot of fluctuations with our portfolio
• Increases job insecurity as slowdown will likely mean layoffs, slow hiring, and/or limited salary increases
• And the one positive: bigger earnings for savers

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Catch the full explainer video on YouTube with graphs to help you understand it all. Leave a comment and let me know how you are handling the rate hikes.

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