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Learn how rising interest rates are affecting your savings and your investment portfolio.

Earlier this year the rationalization for increased volatility in stock prices was fears over tariffs and trade wars. Recently, market pundits attribute volatility to a rise in interest rates — specifically the 10-year U.S. government bond rate that rose above 3%. The theory is that rising interest rates will lead to a slowdown in the economy, even a recession, so traders decided to abandon an aging stock market rally that is over nine years old.

Interest rates represent the cost of lending and/or borrowing money. There are two sides to the interest rate “equation”: one is the effect on borrowers and the other is the effect on savers and/or lenders. Commentators on interest rate fluctuations seem myopic by only focusing on the negative effect of higher rates on borrowers. For example, mortgages will become more expensive that could cause a slowdown in housing, car loan rates will rise that might affect auto sales and credit card borrowers will be penalized by higher rates. More to the point, the monetary textbooks tell us that Fed policy regarding interest rates is focused on slowing the rate of growth in commercial and industrial loans, a key factor that drives a stronger economy through restraining business borrowing.

 

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