Why Interest Rates Matter? This is a very important concept for new investors to understand. You heard about the FED and raising rates. Very simply, higher rates mean higher borrowing costs. So if you were going to buy a car, house or use the CC to take a vacation, the impact is greater. For example, if you are buying a house for $349,000(average price in U.S.) on a 30 year fixed rate loan .
| Mortgage | Interest Rate | Payment |
| 349000 | 3.125 | 1495 |
| 349000 | 6.896 | 2298 |
| Difference | -803 |
This means a higher rate would cost you an extra $803 a month. How much less to you spend for the next 30 years or at least until you refinance when rates come down. No related this to everything you buy! Credit cards can go from 10.99% to 25.99%. The fact you need to cut spending based on you income to afford your debt. AND this is just consumers, can you imagine a company trying to take a loan to fund a new manufacturing plant in your home town? The company will probably wait. No new jobs, and maybe just close a manufacturing plant. These slow down the economy and inflation also.
Now let’s look at Fiscal Investors. If they have a choice of getting a rate of return of 5% in a US Treasury. Why not just put the money there. Stock earnings will be down and you would assume stock prices aren’t going to move as much. Let’s just protect the money until the market looks like it is ready for growth.
High interest rates are bad for consumers and investors. They slow spending which is great for controlling inflation but horrible for investing for growth. No one is buying as much, investing in new business opportunities and etc. The only exception is Fiscal Investors buying Interest Rates products locking in high interest rate returns. See the article on Loving Compound Interest.