How do wealthy households react to higher interest rates? What actions can they take to protect their net worth from higher interest rates?
There are many options to find ways of accruing one's wealth and wealthy households know very well how to increase theirs. As the rates increase, the purchasing power of the wealthy families will be boosted because the national currency becomes stronger compared with other currencies. Alternatively, they will financially help such families .Of course, the increase means it will cost more to borrow ; however, the wealthy households will benefit from getting better rates on high-yield certificates of deposit because they do not have to borrow any money from the banks any way.
Paul: Thank you for posting that paper, Ali. It is a very interesting read.
Lower interest rates make it more attractive to buy assets such as housing. This will cause a rise in house prices and therefore rise in wealth. Increased wealth will also encourage consumer spending as confidence will be higher. (wealth effect)