Smart Borrower Blog

Fed Hikes Interest Rate to Highest Level in a Decade


Mar 21st, 2018 @ 8:19 PM by Amber Nelson


With the economy pushing forward, the Federal Reserve’s Federal Open Market Committee raised its target interest rate once again, pushing it to the highest level since 2008.

During its March 21 meeting, the Fed increased its federal funds rate to 1.75%, up from 1.5%. Rates still remain well below the historical average of 5%.

“The labor market has continued to strengthen and …economic activity has been rising at a moderate rate,” the Fed announced in a statement Wednesday. “Job gains have been strong in recent months, and the unemployment rate has stayed low.”

Unemployment is predicted to fall even lower, dropping to 3.8% this year and 3.6% in 2019, the lowest on record in 50 years. The economic outlook is improving as well, with GDP expected to grow 2.7% in 2018 and 2.4% next year.

This was the first rate hike under the direction of new Chairman Jerome H. Powell, but will likely not be the last. The Fed forecasts another three rate increases through this year, a direction that will please savers who benefit from higher returns but not borrowers, who will have to pay more for their loans. Everything from mortgage loans to small business lines of credit to auto loans could feel the pinch of rising rates. Credit card users have already seen their rates jump by an average of one full percentage point in the past year.

Of course the rate hike only comes as the Fed feels confident that it is necessary to check inflation. “Fiscal policy has become more stimulative. Ongoing job gains are boosting incomes and confidence [and] foreign growth is on a firm trajectory,” Powell said in a press conference. Indeed, the speed of economic growth may even necessitate a fourth rate increase according to 6 members of the FOMC.

Four rate hikes in a year would be a first in over 12 years.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

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