Ok, the economy is finally good again. But that doesn't mean it doesn't come with strings attached. Get ready for much higher interest rates:
Bottom Line: The economy is the best it's been since at least 2005. That's the great news. And as we know there are many great outcomes associated with that great news. Among them:
Lowest unemployment rate in over 17 years
Highest wage growth in 11 years
Record stock market performance
Record retirement account balances
If the US economy manages to continue to grow at a 3%+ pace we're going to get our brains around much higher interest rates. There weren't many good things about the recession and subsequent eight years of growth averaging 1.8% (the worst stretch in US history) but interest rates were the silver lining. After a decade of record low and near record low interest rates - times will need to be a changing...
The Fed Funds Rate, or the rate of interest the Federal Reserve charges banks to borrow money, has been 4.5% historically. That's a 4.5% wholesale interest rate with an average 3.1% growth economy. What's the current fed funds rate? 1.4%.
While the Federal Reserve has been slowly raising interest rates since December of 2015, we're nowhere normal rates. The fed raises rates to keep inflation from getting out-of-hand and causing economic bubbles that can lead to crashes. So, what would this mean to you? It means that the average mortgage rate would likely nearly double from around 4% to 8%. It's means that all variable rate debt would will be rising progressively as the fed raises rates. It also means that you need to be seriously looking at all major purchases you'd be considering over the next couple of years. You should seriously be looking to prioritize big ticket purchases before rates potentially more than double which could happen easily within a year and a half.