A Fed rate hike will not directly set mortgage rates but it does affect the housing market. This rate hike, however, indicates that the United States economy is improving. The Federal Reserve raised its key rate of interest lastWednesday (the second rate hike since December)and is a sign that the U.S central bank is making plans to increase rates faster in 2017.
One rate hike won’t change the world but millions of Americans will be affected by the higher interest rates. It is important that should you have a savings account, a credit card, or invest in stocks or bonds, you need to pay close attention.
Keith Gumbinger, vice president of HSH.com, said: “The last couple of times the Fed made a move, the rates firmed up in advance of the decision, and when it happened they kind of faded.”
Here’s how the Fed’s rate hikes could affect you.
1. Savings accounts will pay more
When the Fed raises short-term rates, customers get higher interest on their bank deposits. How fast they will go up or how much higher will depend on whether the Fed will keep raising rates. Experts say it could take one to two years at least to start seeing a real difference. After all, the Fed rate is expected to rise just by 0.25%. It’s good news for savers if rates go up but they need to wait for more.
2. Rates are rising but still low
Over time, as the Fed increases the rate, the mortgage rates are expected to go up as well. This does NOT guarantee that the mortgage rates will also rise but last year, when Fed did one rate hike, mortgage rates fell in the following months. According to Freddie Mac, before the election, the typical fixed rate on a 30-year mortgage was 3.5% and is currently around 4.2%. This significant increase took place since President Trump’s promise to reduce the tax rate and raises government spending.
3. Trump market rally won’t be the end
When the Fed increases the rate, it increases the borrowing costs for companies and can cool down spending plans and strengthens the dollar. These factors can pinch profits.
A strong dollar tends to make U.S. products more expensive, like iPhones — and less attractive — to foreign buyers.
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