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<\/a><\/p>\nYour credit card interest rate, or your adjustable mortgage interest rate may not have even changed because so many of them are already below the “floor” or minimum interest rate stipulated in your agreement. Even if there was an adjustment, it was relatively tiny. If your credit card interest rate is Prime + 10%, in November, the rate was 13.25% and after the rate increase it was 13.50%. Yes, that’s higher, but it won’t mean much in real dollars without a pretty big balance on the card. On a $10,000 balance\u00a0that’s the difference between $1,325 in interest and $1,350 in interest, a change of just $25. (That is overly simplified math, but it illustrates the point.)<\/p>\n
Even if the Fed raises interest rates again, they would go to 0.50% and then 0.75%. We are at three 0.25% increases (the most likely amounts) away from a 1.0% Federal Funds Rate.<\/p>\n
Not Everything Is Based on Fed Interest Rate<\/h3>\n
Many forms of debt only have tangential relationships with the Federal Reserve rate. The Federal Reserve rates are short-term interest rates. Long-term loans, such as mortgages, are based on long-term interest rates, which are set by the market. While long-term rates typically move in the same direction as short-term rates, they seldom do so on a one-for-one basis. In other words, a 0.5% increase in the Fed Funds Rate might result in a 0.1% increase in long-term interest rates.<\/p>\n
Inflation Isn’t What It Was<\/h3>\n
The main reason to raise interest rates is to prevent inflation. The irony is that there hasn’t been much in the way of scary inflation in decades. One can credit the Fed for that, but also quicker feedback loops from the markets and global economy keep inflation from running off without warning. Also, the globalization of the job market means that even as unemployment falls, wages aren’t necessarily rising. Without increasing wages, inflation can only come from commodity issues (oil supply, for example) or increased demand. That demand would, theoretically, come from increasing consumer debt, but most consumers are still in a cautious state of mind after dropping through two major recessions in just a two decades.<\/p>\n
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In other words, the Fed may or may not raise interest rates again this year. If it does, expect plenty of news coverage, and even more financial analysts opinions, but in the end, for the average person, there are still several rate hikes to go before it will make much difference in your daily life.<\/p>\n","protected":false},"excerpt":{"rendered":"
I’ve been writing about interest rates much more than I wanted to lately because I often write about what people talk to me about, or what I hear all over the place, and interest rates seem to be holding people’s attention. I’d like to offer up some ideas about how to think about interest rates. If everyone started keeping these things in mind, maybe there wouldn’t be so much talk. Interest Rates are a Continuum One of the biggest problems people have wrapping their heads around the concept of the Federal Reserve raising interest rates is that it is not some sort of on or off type thing. Sure, each increase is a Yes or No to the question of whether or not the Fed will raise interest rates, but the resulting rates are not simply “high” or “low”. Consider the Fed’s interest rate increase in December. It raised interest rates from 0% to 0.25%. Yes, that is an increase. Yes, it is the first increase in some time. But, is there really much difference in the world because of it? Your credit card interest rate, or your adjustable mortgage interest rate may not have even changed because so many … <\/p>\n