Written by Dick Lepre
Financial decisions can be daunting, especially when planning for a large purchase or investment where interest rates influence the cost of borrowing money. While there is no crystal ball to provide completely accurate predictions about rates, understanding the basics of economic news can help facilitate more informed decisions. Is it the right time to invest in a new home or refinance an existing one? Is a fixed rate mortgage the way to go or is there a chance rates might go lower? The U.S. Federal Reserve monitors various indicators to help guide economic policy. The media follows closely, reporting on inflation, the job market, foreign affairs, and more. So, what does it all really mean to the average consumer preparing for a big financial decision?
To stay informed and understand economic news, it’s important to watch two specific numbers that have significant effects on U.S. and world economies. Read on to find out what numbers to watch and what impacts to expect.
U.S. Dollar vs Euro Exchange Rate
The U.S. Dollar/Euro exchange rate is important because it has been moving and it reflects the problems of Europe. Is a strong dollar a good thing? Well, that depends. A stronger dollar makes U.S. exports more expensive and hurts gross domestic product (GDP), which is a primary indicator used to gauge the health of the economy. However, a rising dollar benefits consumers by lowering the price of imports.
Price of Oil (track WTI)
To track the price of oil, you can use the indicator called West Texas Intermediate (WTI). This is a grade of crude oil that is used as a benchmark in oil pricing.
The price of crude is important for at least two reasons:
• It gets translated into gasoline price, which has the effect of changing how much discretionary spending consumers have.
• Changing oil prices can have radical effects on governments. Notable examples are Venezuela, Saudi Arabia, and Iran. Plummeting oil prices have the ability to cause regime changes which have far-reaching consequences that few can foresee.
As experts and forecasters analyze Fed Chair Janet Yellen’s every word to predict what will happen with interest rates, having insight into economic indicators will allow you to analyze right along with the professionals. If you are considering the financial impacts of a home purchase or refinance, contact a loan advisor near you to evaluate your options.
Follow Dick Lepre’s daily commentary on Twitter @dicklepre.