Skip to main content

How the Federal Reserve's decision to raise interest rates affects you

It's the third hike since the financial crisis, and five more are planned over the next two years.
  • Author:
  • Updated:
    Original:

For the third time since the financial crisis, the U.S. Federal Reserve has raised baseline interest rates in a move that is a reflection of the strengthening of the economy.

Fed chair Janet Yellen confirmed that the federal funds rate – the rates financial institutions can charge for money they lend to each other – will rise to between 0.75 and 1 percent, up from the 0.5 – 0.75 percent rate it has been at since December.

The Wall Street Journal reports that the economic outlook for the U.S. has not really changed a great deal in the past three months, leading some to speculate that the rate hike might be a tactical one to give the Fed more room to act in the event the current upheaval in Washington leads to economic trouble further down the line.

But the Fed said the rate hike comes amid solid job gains, a rise in household spending and a recent increase in inflation that points to a stable economic situation across the country.

Yellen said during a news conference that going forward there will be more "gradual" interest rate hikes to support the "moderate" growth of the economy the Fed expects over the next few years.

It's projecting two more rate increases in 2017 and three in 2018, according to NPR.

By the end of 2018, if they continue to be hiked by 0.25 percent a time, it would mean interest rates of 2.25–2.5 percent by the end of 2018.

What does this mean for me?

In the short-term, the impact of this rate rise won't be that noticeable. Where it will be felt first, though, is for holders of variable rate credit cards, who will see an immediate rise in interest on their debts, the New York Times notes.

Those on short-term, fixed-rate loans won't be affected, but anyone on a variable rate could end up paying more.

Although mortgage rates are more directly impacted by the price of bonds than by interest rates, the cost of 30-year home loans have been increasing following the December rate hike and in anticipation of Wednesday's increase, with CNBC reporting they hit their highest levels since 2014 last week.

Considering further planned hikes could increase interest rates by 1.5 percent by the end of 2018, the cost of mortgage borrowing is likely to be considerably more expensive in the coming years compared to a year or two ago.

CNBC says that is possibly behind why the number of mortgage applications made last week was 6 percent higher than last year as buyers look to lock in cheap rates.

On the plus side, higher interest rates means should you be seeing some better returns on your savings being offered by banks. Although banks are notoriously slow at passing on interest rate hikes to savers (compared to borrowers), there's a good chance you'll be getting a better rate later on this year than you are currently.

Next Up

Gov. Tim Walz and Scott Jensen.

Walz, Jensen clash over 'extreme' abortion views

The two clashed over the topic on Tuesday, following the Roe v. Wade decision by the U.S. Supreme Court.

Screen Shot 2022-06-28 at 12.24.27 PM

Movie filming brings memorable day for MN teen with leukemia

Ayotzin Limon-Millard was diagnosed with acute myeloid leukemia last year.

Screen Shot 2022-06-28 at 1.25.30 PM

Police trying to ID 'Playboy bandit' and 'no-pants raider' suspect

Police are calling the unidentified man "the Playboy bandit" and the "no-pants raider."

storm, severe, shelf cloud

Twin Cities under severe thunderstorm watch Tuesday afternoon

Large hail and damaging winds are the main threats.

Screen Shot 2022-06-28 at 9.27.30 AM

Famous Dave's family brings new BBQ biz to the south metro

The newest Twin Cities location is the first to offer wine slushies on the menu.

storm, shelf cloud, severe weather

Large hail possible with strong storms in eastern MN, WI

Watch the forecast update with meteorologist Sven Sundgaard.

Tony Evers, Wisconsin governor

WI governor vows to protect anyone charged with abortion crimes

“You think it’s bad now? The four Republicans that are going after me, one of them we’re going to beat, they are going to make it worse," Evers said.

covid

Minnesota's COVID-19 update for Tuesday, June 28

The state will stop providing daily updates and move to weekly editions beginning Thursday, June 30.

FWV_YSOWAAI_CS-

Sports anchor Hobie Artigue announces FOX9 departure

Artigue has spent the past seven years covering Minnesota sports.

hennepin county medical center

Boy, 7, dies after being pulled from pool in south Minneapolis

The boy was pulled from a pool at a home in south Minneapolis.

Screen Shot 2022-06-28 at 8.32.18 AM

Nashville man leaving wedding shot in the face in Minneapolis

He was leaving a wedding when gunfire erupted near the Stone Arch Bridge Saturday night.

image

Abogados Café in St. Paul is the first law-themed coffee shop in America

The new business is Minnesota's first Latina-owned coffee shop.

Related

The Federal Reserve just hiked interest rates – here's what it means

Ir you're looking at student loans, thinking about buying a house, or have a credit card, this is good to know.

How low-income home buyers in MN could be hit by one of Trump's first decisions

Low-income, first-time home buyers could have saved hundreds of dollars a year.

Here's how a major change to a credit score model will affect you

It's good news if you have a history of paying down debt.

Key points from Trump's tax plan: What would it mean for your finances?

His plan would have major implications for families and businesses.

People spent $8B more on Amazon over the holidays, yet investors are disappointed

People bought way more stuff from Amazon over the holidays than the year before. But not everyone was impressed.

The Tip Jar: Why your credit score matters, and how to boost it

Want a mortgage? You'll probably need a solid credit score.

The Tip Jar: Dining out? Here's when and how much you should tip

Tipping can be a minefield – let us help you satisfy social conventions.