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How can these rate hikes impact the economy?
- Well, these rate hikes affect the price of money. So, as the Federal Reserve raises benchmark interest rates, it affects the price of loans for both consumers and businesses alike. So, it changes the calculation whenever a company is looking to expand, whenever they're deciding whether or not to make an investment in a particular project or equipment. And from the consumer side, it impacts affordability on whether or not you're gonna be able to afford to buy that big house you have your eye on, how much your monthly payments are going to be for your various forms of debt, whether it's credit cards, car loans or your home equity. All of that collectively can act as a break on the economy to keep either inflation from getting out of hand or to keep asset bubbles from forming.
- What about the markets, do you think that it'll have an impact there?
- Yeah, I think it's gonna be another volatile year in markets, but when I say volatile, I mean both up and down. So, you've gotta be in it to win it. You look back at what we saw the week of Christmas. December 24, the market was down very sharply and then December 26, when things appeared to be their bleakest, what happened? We saw the biggest single day point increase in the Dow in history. The market rallied very sharply. It just goes to prove that just because the market moves down one day, it may bounce back sharply the next. Don't try to outguess the markets. Maintain your long term perspective despite short term volatility and just hang in there. What you need to be looking is thinking 10, 20, 30 years down the road, not what's the economy doing or what's the market doing this month and next month.

Whew. Here we go again. 

The speculation around rate hikes just doesn't stop. Greg McBride, Bankrate's chief financial analyst, believes that the Federal Reserve will hike rates twice in 2019. 

But what about the impact on the economy? McBride breaks it down.

"Well, these rate hikes affect the price of money. So, as the Federal Reserve raises benchmark interest rates, it affects the price of loans for both consumers and businesses alike. So, it changes the calculation whenever a company is looking to expand, whenever they're deciding whether or not to make an investment in a particular project or equipment," said McBride.

"And from the consumer side, it impacts affordability on whether or not you're gonna be able to afford to buy that big house you have your eye on, how much your monthly payments are going to be for your various forms of debt, whether it's credit cards, car loans or your home equity. All of that collectively can act as a break on the economy to keep either inflation from getting out of hand or to keep asset bubbles from forming," McBride said.

Want to see more from the interview with McBride? You can watch the full interview here.