Today, the Federal Reserve increased its Fed Funds rate by a quarter percentage, resulting in a target range of 0.75 and 1.00 percent.
The fact that the Fed raised interest rates wasn’t entirely unexpected, and stocks saw a small jump at the time of the release. Because this rate hike was widely anticipated, stocks aren’t expected to make a huge move during the rest of the session.
Most of the 10 voting members of the Federal Open Market Committee agreed to the interest rate hike. Only Neel Kashkari voted against the increase.
Fed expects inflation to reach 2 percent target
Part of the Federal Reserve’s mandate is to encourage maximum employment and price stability. As a result, the agency generally targets a 2 percent inflation rate.
Right now, inflation is below that target. However, Federal Reserve Chair Janet Yellen explained in the release that they expect to see that target reached over the medium term. With the PCE inflation index at 1.9 percent, the Fed believes gradual rate increases will keep inflation from running out of control.
The Fed doesn’t foresee PCE exceeding 1.9 percent in 2017.
Could we see more rate hikes this year?
As the Fed raises interest rates now, it’s likely they’ll continue to increase rates this year. Because Yellen and other Fed members see continued economic growth, experts forecast two more rate hikes before 2018.
The timing depends on the economy, but analysts at Morgan Stanley expect a rate hike in June and another in December.
Forecasts from the Federal Reserve also show imminent rate hikes in 2018, assuming the economy continues to grow at a modest pace in the coming months. The Fed’s forecast for GDP growth in 2018 is 2.1 percent. The Fed also expects the unemployment rate to drop to 4.5 percent by 2019.
What does it mean for you when the Fed raises interest rates?
The bottom line when the Fed raises interest rates? Get ready to pay more on your debt.
If you have variable rates on your debt, including credit cards and home equity lines of credit, you could see an increase in your interest charges.
On top of that, other rates are likely to rise. Mortgage rates are loosely influenced by what happens with the Fed Funds rate. Car loans are also likely to see higher rates. As the Fed raises interest rates, the cost to borrow money goes up. Your new loans will come with higher price tags.
Even though federal student loan rates are set by Congress, it doesn’t mean they aren’t impacted. Congress takes into account the market when deciding what to do. As a result, they could decide to raise student loan rates, too.
Some benefits of a Fed rate hike
A Fed rate hike isn’t all bad, though. Some consumers see positive effects.
Higher interest rates generally mean higher yields on deposit accounts. Your savings accounts, CDs, and money market checking accounts could see increases in yield.
Today, the stock market is extending earlier gains on the news of the Fed rate hike, as well as Yellen’s assessment of continued economic growth.
Investors are seeing some gains but those could be short-lived, depending on how the economy fares and the pace of Fed rate hikes over the next few months.
In general, the stock market sees bigger gains when the Fed cuts rates. However, if the Fed paces itself, there’s a chance that the market will respond favorably.
Read more about the Federal Reserve’s impact on your wallet
You might be surprised at the effect the Federal Reserve can have on your finances. Learn more about how the Fed Funds rate influences your money:
- Interest Rates Are Rising: 6 Actions You Should Take ASAP
- What the Fed Rate Hike Means for Your Student Loans
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of March 18, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 0318/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
|2.54% – 7.27%1||Undergrad & Graduate|
|2.67% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.54% – 7.43%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|