By Craig Erwin, Ph.D.
High inflation is ripping though the economy, forcing many of us to struggle to get by. In response the Federal Reserve (the U.S. central bank) jacked up interest rates at its last meeting and is expected to crank them up again at next week’s meeting. Rising interest rates can bite, just like inflation, making credit card debt, car loans, and mortgages more expensive. They also hurt employees, often limiting raises and bonuses. Thankfully, at least savers benefit from higher interest rates. So does the dollar. As rising interest rates stoke demand for the dollar, the dollar strengthens against other currencies such as the Euro.
The dollar has only been as strong as it is now three times since the 1960’s. A strong dollar can have a big impact on your finances. How?
-It makes it cheaper for you to travel abroad and buy foreign goods.
-If you work or live abroad and you’re paid in dollars, your cost of living will be lower.
-If you are considering selling American businesses or assets, they will be more attractive to foreigners as their values rise with the dollar.
-If you are a business owner or investor, you may benefit from lower raw materials costs and higher prices for your products.
-If you study abroad and you get money from home, that money will go farther.
-If you invest in foreign companies that conduct business in the U.S., you will benefit as a strong dollar increases their sales and profits.
-Low import prices keep inflation in check, which could slow or halt U.S. interest rate increases.
-You can buy foreign investments at lower prices.
Rising inflation and interest rates and a strengthening dollar have wide-ranging effects. Although a stronger dollar is neither good nor bad, it sure leaves winners and losers in its wake.
What’s changed in your life this year? Has the stronger dollar affected you? If so, how?
For more information on the economy, inflation, saving and spending, click on the following links:
Leave a Reply