By: James Overmoyer
Are you planning to go to college? Do you want to buy a home? Do you ever want to invest your money? If your answer to any of these is yes, then you should be paying attention to the stock market. Your parents probably have a retirement account or a money market account. Growth for all accounts, retirement or otherwise, depends on the market rates. Market rates, or interest rates, are what grows your money, no matter where you’ve invested it. Interest rates are the return you get for allowing a bank to use your money. In that way, the bank lends you the money to, for example, go to college, and then you repay that money plus interest, allowing the bank to make a profit.
Interest rates are in the hands of Jerome Powell, the new Chair of the Federal Reserve. The Fed Chair, along with 12 Federal Reserve bank presidents, sets short-term interest rates and is the highest authority on driving the economy’s interest rates, which help to protect the economy from inflation that devalues our money. Inflation is basically when currency - in the U.S., the dollar - devalues because of the amount of dollars in circulation. Inflation will cause everyday prices to rise: you might have to pay two dollars for what was a one dollar meal. Increasing interest rates can help slow inflation by encouraging people to borrow less money and save more. High interest rates lead to less money going into the economy and in circulation. Low interest rates cause the opposite: more money in consumers’ hands, flushing the economy and causing inflation. The growing economy is starting to lean toward higher growth, which is why rate hikes on interest are staring us down. These increases are to help put the brakes on the economy and steady it before a possible recession. While the market is still a bull market, or a market in which buyers are investing because they anticipate growth, the volatility is unsettling.
Do you want to observe why stocks move and why you’re paying more for a can of soup? If so, check back for my monthly financial column, where I will answer these questions and more. If you have any other burning financial questions, e-mail me at firstname.lastname@example.org.