Interest rates play a critical role in today’s economy. Last week, the Federal Reserve raised interest rates for the second time this year—and two more are planned for 2018. In this installment of U.S. Money Reserve's Market Insights, find out what the rate hike means, and how markets could be in trouble.
How Rising Interest Rates Impact You – Video Transcription
Coy Wells: 00:04
Hi, I'm Coy Wells with U.S. Money Reserve and USMR Market Insights today we're gonna be talking about interest rates. As we all know, the interest rates were just raised a quarter of a percent about three to four days ago. Right now it's important to understand, as a consumer, what interest rates actually mean. If you've been watching these segments as we've been talking about for the course of the past six months to a year, interest rates are a crucial and critical role in the U.S. economy and those who understand what's happening right now, every time they raise interest rates, as we've discussed in the past, it directly affects the stock market. The stock market starts pulling back.
Coy Wells: 00:34
The question becomes, why would the stock market keep pulling back every time we raise interest rates? The reason for it folks is because right now interest rates is what is tied to borrowed money. If we raise interest rates, it is more costly to borrow money. It also confirms and tells us that right now that when the stock market pulls down, when interest rates are rised, it means that the companies and corporations inside the United States that have stock, their stock is built off the PE ratios, meaning that the price to earnings and the earnings of the company have to be solid for the stock value to be solid as well. The reason why it affects the stock market is because the companies and corporations are using borrowed money and as the money becomes more expensive, the companies and corporations have to start revealing and using their own earnings opposed to sacrificing, paying high interest rates. This is very important to understand right now.
Coy Wells: 01:24
Inside the United States the interest rate is a balancing point for the United States. The reason interest rates are also rising is because the U.S. Treasury bonds inside the United States are in trouble. We've talked about this going back to 2017, there was a point in time where Steve Mnuchin suspended the sell of U.S. Treasury bonds and one of the reasons or speculations for that is because we couldn't cover the interest on newly issued notes. We also know that foreign countries were sending back and dumping U.S. Treasury bonds back to the United States. So as we raise interest rates, this is to clear the Fed's balance sheet of Treasury bonds that were sold back or sold off, and we're raising those interest rates to entice other countries or consumers to buy them back. So we're going to pay more money.
Coy Wells: 02:06
Ultimately, interest rates staggers the economy, so that balancing act of trying to push it too far left or too far right is important to understand. If you're a consumer that is looking to protect money, and if you are an individual that believes in hard assets such as gold or land or other assets, land is in a critical point right now. It's at a tipping point. If we continue to raise interest rates and you're buying real estate right now, what will be the longterm effects of that real estate at a high end real estate market when interest rates continue to rise over the next three or four years? If the country, the United States, gets itself in a position where interest rates are five, six, seven, eight, or nine percent on a home loan, it's going to slow down the economy. It also means vehicle loans become more expensive. Credit card debt becomes more expensive. Student loans become more expensive. It starts staggering and slowing down the economy.
Coy Wells: 02:58
Thank you for watching USMR Market Insights, call the number and screen and get your copy of your 2018 Gold Global Forecast to give you more information in regards to what we talked about today. Hopefully this segment helped you. Again, thank you for watching USMR Market Insights.