Last week, the Federal Reserve did something it hadn't done in nine and a half years. After keeping its rates as close as possible to zero, Washington announced that they are increasing their interest rates.
Around the country, the Fed hike spelled bad news. Raised interest rates only means one thing, higher costs of purchasing a house or car. However, for New York, the said hike is great news. The city's real-estate bubble has been inflating for a few years now but with the recent hike, experts are positive that New York will finally overcome the problem.
The Federal Reserve decided to increase their interest rates for two understandable reasons. First, Fed Chairwoman Janet Yellen and her colleagues see that the economy is finally improving. Over the past year, the economy showed healthy signs of improvement such as gaining 2.6 million jobs for struggling Americans.
When more people are making money, they start borrowing and spending too much of it. This will result to an inflation in the economy. To prevent this mishap, the Feds raised their interest rates to a quarter of one percentage point.
Second, another reason behind the hike is to prevent a bubble. Since the 2008 financial crisis, mortgages, car loands and other types of loans have been cheaper than ever. The Federal Reserve kept the rates low because it encouraged people to borrow. However, they are now putting a brake into it because they know that cheap borrowing, in the long run, can harm the economy.
While higher interest rates are positive for the real estate market, they are expected to harm Wall Street which depends on cheap financing for profits from trading and issuing debt. The city's financial industry lacks 19,000 workers compared to 2007 and with Morgan Stanley laying off 1,200 employees this month, things are not looking great for Wall Street next year.
