A. NO! But yes, you are correct, the US Federal Reserve has given the signal that it may begin to increase interest rates in 2023 and by the end of that year, it could have raised interest rates twice. This is a big departure from the indications given by the same Central Bank in 2020 that it would most likely keep interest rates at their historic lows for some time yet. However, it now seems that time has come around much quicker than expected. From an Irish perspective, the actions of the US Federal Reserve will have mixed impact. First, from a savings and borrowing perspective, since our interest rates are controlled by the European Central Bank in Frankfurt, as long as it maintains interest rates at their current levels, interest rates for saving and borrowing will remain unchanged. So, if you have a variable-rate mortgage, the cost of your monthly payments will remain as they are now. The same is true for interest on savings accounts…if you are lucky to earn any!!! Again, there will be no change.
Where the actions of the US monetary authorities can have an immediate impact is on the value of your pension. This is because your pension may have funds and other underlying assets that are both directly and indirectly linked in various ways to the US economy where rising interest rates will have an impact. So, it might mean that where you have a Defined Contribution pension fund, the value of that fund may fall on the expectation of underlying asset prices falling.
Finally, the reason the US authorities are taking action is broadly in response to inflation. In recent weeks, as economies emerge from Covid-19 lockdowns, a whole range of goods, products and services are in short supply. In turn, this shortage is causing a whole range of costs to rise, including the cost of labour, raw materials, commodities and even transport. These are the types of conditions that most concern monetary authorities, including central banks. And while the US authorities are just announcing their plans for 2023, you should not be totally surprised if the ECB follows a similar line in the near future.
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