The Federal Reserve raised interest rates one-quarter of a point, or 0.25%, in a widely expected move. The benchmark rate is now technically the range between 0.75 percent and 1.0 percent, although most people refer to this simply as 0.75%.
As pretty much everyone predicted, the Fed raised interest rates at its March meeting. This is the second interest rate hike in just three months, and the third one overall since the Great Recession.
Fed Chairwoman Janet Yellen said, “The simple message is, the economy is doing well.”
What Happens Next?
While some indicators are showing signs of inflation, there is also an increasing concern that the economy isn’t as robust as some might think. Things certainly look good right now, but few analysts look as this economy as a powerful train moving forward, so much as a boat drifting in the right direction and easily pushed off course.
As a result, the guidance from the Fed continues to be for three total interest hikes in 2017, meaning that currently they expect two more hikes between now and December. Just when those hikes will come depends a great deal on how the economy fares. Another few months of good job reports and increasing prices, could mean two increases in a row. Any signs of faltering, however, leaves the Fed with room to skip a hike, or put some space in between.
While some so-called hawks are squawking about higher inflation numbers, the Fed was careful to not that without the rise in oil prices (caused more by OPEC maneuvering than actual inflationary pressure), inflation still remains tame and below the mythical 2 percent target. Yellen made sure to note that 2 percent, “is not a ceiling on inflation. It’s a target.” In fact, the Fed believes that inflation may end up slightly above 2 percent for certain, shorter periods of time.
The Fed currently sees inflation for 2017 running at 1.9% which would come very close to the 2 percent target. It also continues to see GDP growth for 2017 at 2.1 percent.
Consumer Interest Rates
Consumers with variable interest rate credit cards tied to the Prime lending rate will see a 0.25% bump on their current interest rate.
Mortgage rates, which more closely follow the 10-year Treasury rate, have already been increasing in anticipation of the rate move. As a result mortgage rates won’t show any sudden increase, although they will likely continue to tick upwards as analysts see higher rates in the future.
Savers won’t see much change on their savings accounts and bank accounts. Banks move much more quickly to boost rates on loan products than on deposit accounts.