The Pros and Cons Of The Federal Reserve's Interest Rate Hike


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The Pros and Cons Of The Federal Reserve's Interest Rate Hike

An IU economist says higher interest rates are a sign of a flourishing economy and that there is a way to use them to your advantage.

STATEWIDE -- Last week the federal reserve decided to increase interest rates by just a quarter of a percent.

The benchmark interest rate now sits at 2.25-percent. If you aren't familiar with what the federal reserve does, it regulates the banking industry in order to keep prices of things Americans by stable. Every now and then the fed changes it's benchmark interest rate depending on how well the economy is doing.

The economy is doing well based on the September jobs report which was released Friday morning. Just 3.7-percent of working Americans are unemployed, the lowest unemployment rate has been since 1969.

"Everyone is going to feel this one way or another," said IU Kelly School of Business Economist Todd Roberson on WISH-TV. "It's like any economic phenomenon. It's both good and bad and shifts around incentives and rewards."

Roberson points out the obvious that "higher interest costs mean higher interest payments," but he said even though you are now paying a little more on things such as your investments, students loans, and your mortgage, you still get a good trade off.

"One person's interest payment is another person's income," Roberson said. "Just like one person's bond price that is knocked down is another person's bargain."

He said that works in reverse as well. If you invest in the stock market higher interest rates mean a higher return on your investment. Of course, higher interest rates mean higher mortgage payments if you own a home.

"If you have not refinanced your mortgage since 2008, now is the time to do it," Roberson explains. Because interest rates are only going to get higher."

He also recommends to avoid "adjustable rate financing" when you refinance you debt, adding you should opt for "fixed rate financing" since those rates stay the same, regardless of who the federal reserves benchmark rate does.

(PHOTO: Bryan Smith/Getty Images)

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