For February, the Fed will maintain rates at 0%
The Federal Reserve met on Wednesday, January 0, and indicated plans to alter its monetary policy to raise interest rates in March to combat rising prices.
The federal funds rate was held at 0% to 0.255% in February by the central bank. This is to keep interest rates low while it stops asset purchases. inflation rose by 7.7% per year in December. This is the largest increase in 40-years. The Federal Open Market Committee (FOMC), however, will soon start interest rate increases to try and bring it down.
“Today’s clear signal by the Federal Reserve that they will raise rates in March was not surprising, given the strong economy and inflation well above 2% target,” Mike Fratantoni (Mortgage Bankers Association) senior vice president, chief economist. Given the economic evolution, it makes sense that the Fed has taken swift action to end any further growth on their balance sheet and thereby reduced accommodation at the longer end yield curve.
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Fed rate hike expected to impact credit cards and adjustable rates loans first
One expert explained that borrowers who have credit cards, adjustable-rate loans, or other short-term interest rates that fluctuate with market conditions, will be the first to feel the effects of Fed raising rates.
Kent Lugrand, president and CEO of InTouch Credit Union, stated that higher interest rates would likely impact borrowers’ credit cards balances and any adjustable rate loans first, before trickling into other loan types. Customers should expect to see the Federal Reserve’s first move to increase short-term rates at its mid-March policy meeting, which will be reflected in their balances for new purchases in April and May.
Lugrand stated that borrowers should pay down high-cost credit cards debt as soon as possible to help ease future “pocketbook pain”.
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Lugrand warned homeowners with adjustable-rate mortgages that the Fed’s decision not to raise rates could have an impact on their homes.
He stated that the Fed rate rise’signal’ would eventually have an impact on adjustable-rate mortgages, potentially leading to increased monthly payments. If they already have an adjustable-rate or variable mortgage, they should look into refinancing and shopping around.
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Higher interest rates
Although interest rates may rise soon, there are some positive aspects to rising rates: savings accounts.
Lugrand stated that while higher rates can lead to higher borrowing costs, they also mean higher interest rates for savings deposits and other accounts that pay dividends.
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