Why a Fed rate hike can be a good thing (Part I)!

Stocks gained today on talk of a possible interest rate hike from Fed Chairperson, Janet Yellen. There are many reasons to actually celebrate an interest rate hike.

Yellen: “Rate hike probably appropriate in the coming months”

1. An increase in interest rates will help savers, who currently have to contend on bank CD rates sitting at less than 1% (which, of course, is a whole lot better than negative rates faced by our brethren in the EU)

2. It helps increase inflation – and yes, that can be a good thing. A higher value of the dollar can lower the prices of imported goods. But there is a flip side here as well – a stronger dollar makes it harder for the rest of the world to buy our products, making the trade deficit worse

3. Banks make more money when interest rates go up – and that improves access to credit for the rest of us. Banks rely on the spread between the rates that they pay you on money (CDs etc.) and the rates that they make on money they loan out (to businesses, individuals). This spread begins to look even better in an increasing interest rate environment.

Janet Yellen interest rate hike

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