How The Fed Rate Hikes Impact Your Money

I've got bad news if you have credit card debt.

Author

Doug Antin
September 26, 2022

This is the first of several threads that will cover the largest themes addressed in TSI Weekly over the past 2 years. These threads will cover foundational ideas that impact where the world is heading.

    #1 A Newsletter All About Asynchronous Work

    Remote work will bring big changes to society. But those changes are held back because most remote work companies rely on synchronous communications. ie: real-time messaging that requires people to co-exist in similar time zones.

    Think about it like this, to run a synchronous business, workers more or less need to live +/- 6 hours from each other. Anything beyond that starts to create logistical challenges for more traditional work arrangements.

    But what if that weren't the case? What if you could work with a team while living beyond +/- 6 hours apart? How would that change how we live, work, and form relationships?

    Becky Kane's newsletter keeps track of asynchronous work trends and is working to answer a lot of these questions.

    Some things to check out from her publication:

    Here's the bottom line: as remote work continues to integrate into society, more companies will embrace worldwide teams. And that will require that they embrace asynchronous work. So it's worth paying attention to the evolution of this new workstyle because you're likely going to have to adopt it sooner rather than later.

    #2 How The Fed Rate Hikes Impact Your Money

    It's easy to ignore interest rate hikes as something only economists need to worry about. But the truth is that these rate hikes have a real and significant impact on your money and lifestyle.

    "By raising rates, the Fed seeks to cool the economy and rein in inflation"

    "Higher interest rates raise the cost of carrying credit-card balances and taking out mortgages, car loans and other debt"

    "The average credit card interest rate has reached its highest level in more than 26 years and is set to rise even higher with the Federal Reserve’s 0.75 percentage point interest rate increase on Wednesday, bringing further pain to consumers relying on cards to make ends meet amid rising prices."

    "The average annual percentage rate is 18.1%, the highest since January 1996, according to Bankrate.com data that goes back to 1985. Credit card rates rise alongside the benchmark federal-funds rate, and further tightening by the central bank will likely cause the average credit card rate to reach the July 1991 record high of 19.0% in the coming months"

    "Credit card balances rose by a collective $46 billion from the first to the second quarter of 2022, according to the Federal Reserve Bank of New York. That increase was among the largest seen in its data since 1999, and was at least partly driven by inflation. "

    The point is that small changes in interest rates can add up quickly.

    An additional $25 of interest on your credit card every month. $50 more interest on your car payment. All piled on top of rising costs of food and other goods. And that house you were looking to buy? It might be valued the same as it was 6 months ago (probably not) but the interest payment on a mortgage is now double.

    This matters over a long period of time because your debt compounds. Meaning that if you're unable to pay the additional costs of debt, what you owe will now grow at a faster rate than before.

    That's a major blow to many people.

    Maybe you're not too worried about the rise in rates because you have a good-paying job?

    Then consider the fact that Fed officials have said they want the labor market to "cool off". Translation: the Fed wants to see people lose their jobs as a way to lower inflation. So just imagine, you lose your job and you're carrying debt that's getting more expensive every month because the Fed keeps raising interest rates.

    The moral of the story here is that the Fed's actions should cause you to pause and reevaluate your financial situation. If you carry debt, figure out how rising rates impact your choices. And if you think you're job is at risk, develop a game plan. 

    #3 Why Europe Not Allowing Russians To Flee Putin's Draft Is An Important Topic To Follow

    There is an interesting story developing out of the Russian war. As Putin declared a general mobilization of 300,000 troops, many Russians decided to flee.

    The problem?

    They are being denied asylum in European countries.

    Focus on what this type of xenophobia (hate for Russians whether they're pro or anti-war) means for the next phase of globalization and the Sovereign individual thesis.

    Simply put, nationality still plays a massive role in our global society. The world still overwhelmingly defines who you are by where you're from. Regardless of your beliefs, affiliations, and lifestyles.

    And that's unlikely to change anytime soon.

    The broader point is that this war has had a massive impact on Flag Theory and freedom of movement. Remember that Flag Theory is the idea that you can secure citizenship and resident status around the world to gain various legal perks and become a "global citizen". 

    It's clear that by revoking passports and visas and denying Russians asylum, that Flag Theory is not the strategy it once was. ie: citizenship is paper that can be torn up when governments find it politically necessary.

    As an individual that should give you pause.

    Most people don't have any ambition to secure a second citizenship. And that's ok! But for anyone thinking about getting a second passport, this should influence your strategy. Is it wise to have only one alternative option? If you do, should that be in a politically neutral location? A modern-day Switzerland?

    Russia has reignited nationalism in a way that should force you to reevaluate how you think about freedom of movement in the digital age. Because the freedoms of movement we took for granted over the past 20 years are no longer guaranteed.

    Rapid Fire

    Extras

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