Federal Reserve Raises Rates to 9-Year High
Jun 15th, 2017 @ 8:49 PM by Amber Nelson
The Federal Reserve increased its target interest rate to a range of 1 percent to 1.25 percent Wednesday, the first time in nine years the rate has been over 1 percent. The rise could affect everything from credit card rates to mortgage loans to savings rates.
As promised, the Fed raised rates for the second time this year, to the highest level since September 2008 when the financial crisis was underway. The rate hike is curious, considering that recent reports have shown inflation backing off and the economy cooling off slightly.
“We continue to feel the economy is doing well,” said Fed Chair Janet Yellen at a news conference. The Federal Open Market Committee statement added that it “continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further.” The Fed expects to raise interest rates at least one more time in 2017 as well.
What does all this mean for consumers? It means interest rates are likely in increase slightly on all types of loans including auto loans, mortgage loans, credit card loans, and small business loans. Adjustable rate mortgages and HELOC loans will especially feel the increase. On the flip side, savers will benefit as savings account interest rates will also rise and some investments will see higher growth as well.
Meanwhile the Fed also plans to start off-loading its $4.5 trillion asset portfolio of Treasuries and mortgage bonds. They have outlined a very gradual sale-schedule to “avoid creating market strains.” Still the effect is likely to have some effect on inflation and yet the Fed has downgraded its forecast for core inflation for 2017 to 1.7 percent, down from its previous prediction of 1.9 percent.
All in all the increase in rates is a vote of confidence about the strength of the U.S. economy and while that may mean higher rates in everyday life, it should also mean that incomes and wages should be rising as well in the near future.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.