Hidden Perils of Surging Interest Rates

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This past year has been an extraordinary one for dramatic interest rate hikes. Every major central bank has tightened rates across the board, introducing movement as sure and steady as a metronome, with increases in increments previously believed to be impossible.

It’s easy to lose sight of just how far and fast we’ve come. Amidst such breathtaking change, it feels like it’s been a long time since rates moved up or down in small, measured steps. But that’s precisely what was going on since the financial crisis – until the last year of artificial stagnation, when there was virtually no certainty around the direction of markets.

As investors and savers, we’ve been slowly but surely marching down the path toward a new reality. And while a certain amount of trepidation is inevitable during such a period of massive upheaval, the truth is that increased volatility and movement can ultimately be beneficial.

For one, rising rates serve as a sign of healthy economic activity, a key part of building a thriving financial culture. From a practical view, rate hikes are often a signal to investors that the economic cycle has changed and a more favorable environment is coming into play. Additionally, when the investment markets begin to become more active, the influx of capital can create a ripple effect throughout the economy, which is essential for long-term growth.

What’s more, higher interest rates leads to increased savings for consumers, which can be put towards future investments, debt repayment, or building a rainy day fund. So not only does the investment climate benefit, but so too do individuals and businesses who are financially prudent.

Though it’s natural to feel anxious amidst the dominant pattern of interest rate hikes, the bottom line is that such movement doesn’t have to be perceived as a negative. With the right approach and outlook, increased market volatility can provide much needed groundwork for a new period of economic growth and increased financial opportunity.

What’s happened in the past year on the interest rate front is unprecedented. But while these events can make navigating the path ahead complex and a bit intimidating, taking a positive approach to the changes could ultimately be rewarding in the long run.

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Hidden Perils of Surging Interest Rates