Federal Rate Hike And Its Effects On The General Public

The financial market has been pinning its hopes on interest rate hikes by the Federal Reserve for some time now. Earlier in March, the Fed Chair Janet Yellen hinted that there will be a rate hike after the Mid-March meeting. A number of economists predicted that there will be at least 25 base points increase. Falling in line with the predictions, the Federal Reserve has confirmed a 25 base point increase as it hiked the interest rate to 0.75-1%. This was welcomed by the investors who were betting in favor of the interest rate hike.

The Federal Reserve has hiked the interest rate in the last part of 2016. It was expected that there will be at least 3 hikes in 2017. Now, experts hope that the interest rate will be increased 4 times in 2017.

The Fed which acts as a Central Bank has commented that the economy has improved greatly. The interest rates were lowered to sustain growth after the Great Recession in 2009. At the start of the year, Fed was hesitant to make announcements as it wanted to see the path taken by the Trump White House. The economy shows great signs of recovery and Janet Yellen had said that an interest rate hike is appropriate at the moment.

The raising interest rate is supported by fewer unemployment claims and better economic figures. It also means that it would change the way debt is perceived by the general public. While the change won’t be drastic to shrink your wallet, Americans are sure to deal with higher interest rates in the near future.

Mortgage loans are not going to increase steadily following Fed’s step. In fact, the mortgage loans are notorious for traveling in the opposite direction. The long-term mortgages focus on 10-year Treasury yield rates and numerous factors affect the loan rates. Mainly, the inflation in the future and US Treasury demands in the global market affect the mortgage loan rates. Experts forecast that the interest rates on 30-year mortgages may reach 4.5% to 4.75% which is still lower than the interest rates before 2008.

Credit card rates, interest rates of lines of credit and other variable debts will increase in tandem with the Fed rate hikes. These interest rates are fixed based on the prime interest rates of the bank which varies according to Fed’s rate. Auto loans and car loans are not likely to increase because of the competition in the market.

The interest rate hike will not bring any significant change in the return on savings accounts and other money maker accounts. Banks try to use the higher interest rates to generate more profit by charging the borrowers. The increased income is not necessarily shared with savers. Stock investors, on the other hand, will be able to enjoy a stronger market that welcomes the rate hikes. The market has gained significantly after the surprise election results which made Donald Trump, the president of the United States. The Fed is taking several measures to sustain growth by limiting inflation.