How Do Interest Rates Affect the Economy & Real Life?

Real talk, how do interest rates affect the economy & real life? Let’s talk about what’s going on with the economy in normal, less boring terms.

Hey there, friends! Today, we’re diving into the mysterious world of interest rates and the economy. More specifically, how interest rates affect the economy. Buckle up because understanding this financial rollercoaster is about to make your wallet do loop-de-loops!

Chances are, if you’re reading this post, you’ve typed something into google along the lines of…. “Explain the economy in normal terms” or “wtf is happening with the economy everything I read is confusing?”. It can be hard to relate things to real life and the real world.

Sound about right? Well, first things first, I recommend checking out this blog post:

WTF is an interest rate? I’m not entirely convinced I’m interested in them

Understanding the wild world of interest rates can help you navigate the economic rollercoaster with confidence. Whether you’re riding the “Spending Ferris Wheel” or enjoying the “Savings Merry-Go-Round”, just remember to buckle up and I’ll try to help you enjoy the ride.

The Interest Rate Circus

Picture this: You’re at the Interest Rate Circus, and the main attraction is the “Lending Tilt-a-Whirl.” This ride represents the interest rates set by central banks, aka the puppet masters behind the economic show.

Just like the carnival operator adjusts the speed of the Tilt-a-Whirl, central banks tweak interest rates.

The Borrowing Teeter-Totter

Now, let’s talk about borrowing money.

Imagine you’re on a teeter-totter. On one side, there’s you, the borrower. On the other, there’s the lender. The interest rate is the pivot point, the sweet spot where you both find balance.

When interest rates are low, it’s like your friend is super light, making the borrowing teeter-totter a breeze. Making it easier for you to borrow money for things like a home or a car.

The Spending Ferris Wheel

Next up, let’s jump on the Spending Ferris Wheel.

When interest rates are low, it spins faster, encouraging people to hop on and enjoy the ride of spending. You may think, “Hey, maybe I should upgrade my iPhone or add some to extra guac to my order.” This boosts overall spending in the economy, creating more of cash flow.

The Inflation Funhouse

But wait, there’s a twist!

Too much spending can lead to the Inflation Funhouse. Picture this as a place where prices for everything from cotton candy to condos go up, and your money doesn’t stretch as far.

Central banks use interest rates to keep the funhouse under control. If inflation gets too crazy, they might raise interest rates to slow down the Spending Ferris Wheel.

The Savings Merry-Go-Round

Now, let’s talk about saving money.

Imagine the Savings Merry-Go-Round, where your hard-earned dollars go for a spin. When interest rates are high, this merry-go-round spins faster, rewarding savers with more interest on their money.

The Economic Rollercoaster

So, how does all this carnival “fun” affect your daily life? Well, imagine the economic rollercoaster as a ride that can affect your job, investments and the prices of your favorite snacks.

Job Loop-de-Loop: High interest rates can slow down the economy, affecting businesses. This might lead to a bumpy job market, with fewer job opportunities. On the flip side, low interest rates can boost the job market, creating more opportunities and career opportunities for everyone.
Investment Corkscrew: If you’ve got some money invested, the economic rollercoaster can do crazy corkscrews to your investments. High interest rates might make some investments less attractive, while low rates can be a thrill for investors.
Price Plunge: The rollercoaster can also take your favorite snacks on a price plunge. High interest rates may slow down spending, affecting businesses. This could lead to discounts on that ice cream or gourmet popcorn you love.

So, what’s the scoop on the economy right now? How does all of this affect my real life & things around me? Buckle up, now let’s break it down in plain English! Here are some unrelated pictures to give your brain a break…

The Pandemic Drop

Over the past couple of years, the economy took a nosedive, “The Pandemic Drop”. COVID slammed the brakes on businesses, and the economy felt like that stomach-dropping moment on a rollercoaster. Jobs disappeared, businesses struggled and the marketplace was eerily quiet.

The Bumpy Recovery

Fast forward to today, we’re on the road to recovery – but it’s a bumpy one. Picture the rollercoaster slowly climbing uphill after the stomach-dropping plunge. Jobs are making a comeback, and businesses are dusting off their ‘We’re Open’ signs. However, it’s not a smooth ride yet.

Inflation

One twist in the rollercoaster ride is the inflation. Prices for things like gas, groceries and homes are going up. It’s like getting a surprise turn when you expected a gentle curve. This happens because as the economy recovers, demand for goods and services surges, and when demand outpaces supply, prices go up.

The Labor Market

Another loop on this rollercoaster is the Labor Market. Some businesses are struggling to find enough workers. It’s like trying to operate the rollercoaster with not enough ride operators – things slow down, lines get longer and the overall experience isn’t as smooth.

What Does This Mean in Real Life?

Okay, now that we’ve covered the loops, twists and turns of the economy, you’re probably wondering, “How does the affect me and real life?” Well, here’s the deal:

Job Seekers: Job opportunities are making a comeback, but you might encounter a few bumps in the application process. Stay persistent, and remember that the ride isn’t over yet.
Consumers: Prices might be doing the loop-de-loop, so be mindful of your spending. It could be a good time to budget and look for deals.
Business Owners: If you’re running a business, navigating the labor market loops might be tricky. Consider offering competitive perks to attract and retain talent.
Investors: The stock market might feel like a rollercoaster, with ups and downs. Keep a long-term perspective and don’t let short-term fluctuations rattle you.
Home Sellers: You’re in the spotlight! Make sure your house is dressed to impress, and be ready for a whirlwind of offers. Just remember to stay realistic about your home’s value.
Buyers: It’s a competitive ride, so be prepared. Get pre-approved for a mortgage, act fast when you find “the one,” and be ready to navigate some unexpected turns.
Renters: The housing market rollercoaster can affect you too. With rising home prices, renting might be your go-to seat on this ride. Keep an eye on rental trends and consider your options.