The rise in interest rates will only get you smiling when it comes to getting returns on your savings but for credit cards and mortgages, it’s an entirely different story. Despite the high confidence that the economy is headed in the right direction in terms of growth, the Federal Reserve has increased the benchmark interest by a quarter point. This is the second time that the interest rate has increased within a span of three months.
Most financial markets expected this move which takes the overnight interest rate target to between 0.75% and 1%. This decision came after a two-day meeting of the Federal Open Market Committee who overwhelmingly passed the increase obtaining a nine-to-one vote. The Fed’s President from Minneapolis was the single vote that didn’t support the increase.
If that’s not enough, the Fed officials said that two more increases were most likely to happen this year because of the rising inflation. This doesn’t even consider the injection of major funds into the economy facilitated by the infrastructure spending and tax cuts that the Congressional Leaders and President promised. The next hikes are likely to get implemented in June and December with the probabilities increasing following Wednesday’s decision.
This rise in Fed rates will be felt by everyone, from the rich to the poor as it is a huge determinant for the interest rates. Depending on the rates that the banks borrow money on, the impact gets passed on to the consumer and borrowers on things such as mortgage and credit cards.
However, the news doesn’t really seem to have much impact as the stock market major averages are increasing while the government bond yields go down.
The average industrial closing at Dow Jones was at 0.5% (20,950.10), NASDAQ Composite had an increase of 0.7% with Standard & Poor’s 500 also increasing to 0.8%.
Brian Sullivan, the CFO of Orange County Lender Loan Depot said that mortgage rates had already gotten some adjustments in anticipation of Wednesday’s increase announcement. According to Freddie Mac, the mortgage average of 4.21% is the highest to be seen so far this year. However, to Sullivan, this is still a low rate record for home loans and thinks that sharp spikes in mortgage rates won’t happen unless the Federal Reserve increases the pace of the rate hikes.
The changes of the prime loan rates were immediately announced at some major US banks which include KeyCorp, Citibank, M&T Bank, US Banks, PNC Bank, SunTrust, BNY Mellon, BB&T, Webster Bank, Citizens Financial among others.
The Fed Reserve also released some new economic expectations which were somehow similar to the last ones in December. They project that there will be a 2.1% growth in 2017 with the unemployment rates going down to 4.5% by the time the year comes to an end. 2018 will maintain the same growth pace with a minimal improvement from the December estimate whereas 2019 will see a slight decrease of 1.9%.