Fed To Raise Interest Rates

FINALLY! – That’s what your average Federal Reserve Board member is thinking on this fine Friday. The Fed has been almost dying to raise interest rates for over a year now. They projected in December 2015 that there would be multiple rate hikes coming in 2016, but it seemed every time they got ready to raise rates, some economic shakeup would pop up and force them to wait. Until, finally, in December of 2016, they got to raise interest rates, but only once.

Interest Rates in 2017

The Fed did just get a rate hike a few months ago, but it wants more. It needs more. No one is really sure why, since the supposed target of 2.0% for inflation is still not being hit.

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But, today’s job report shows a lower unemployment rate, and an economy that added 235,000 jobs. Even bigger news is wages rose 6 cents in February, after rising 5 cents in January, which means that the labor market is finally, after years of sluggish, iffy growth, on solid ground.

jobs fed interest rates

And so… the Rate Hike cometh!

Futures markets are pricing in a near 90% certainty of an interest rate hike next meeting, and Fed officials keep managing to find new ways to say, “We are raising interest rates next time, unless there is a major catastrophe between now and then,” without actually saying those words.

As usual, this is no reason to panic. Interest rates are still unusually (unsustainable?) low. The current Fed Funds target rate is 0.75 and most analysts expect another gentle 0.25 percent hike at the next meeting, so that would finally, get the American economy back to at least a single digit Fed Funds rate.

Look for a 1.0% rate to come out of the March 14-15 meeting of the Federal Reserve Board.

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What Should I Do For Rising Interest Rates?

So, what should financially savvy Americans do when the Fed raises interest rates? The short version is… nothing.

fed hikes interest rates

Really, this is another tiny increase. The only place most Americans will even notice is a potential quarter point interest rate tick up on their credit cards. There is nothing you can do about this, other than switch to a card with a fixed interest rate if you can find one in the next week.

Likewise, mortgage rates are already trickling up even without the Fed hike, so there won’t be any big changes there. In other words, most of what happens when the Fed raises interest rates won’t be too bothersome this time around.

And, as far as the stock market goes, there is nothing Wall Street likes better than knowing when something is coming, and they are all ready for a quarter-point rate hike from the Fed. So, unless Janet Yellen and company get a little frisky and go for a half-point rate hike, this next boost is just more of the same. You’ll get more stock market reaction out of Donald Trump’s next tweet than out of this well-telegraphed interest rate hike.

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