The U.S. Federal Reserve has again moved to raise interest rates, motivated by strong job gains and an improving economy as reasons for doing so.
Of course, the Fed doesn’t directly raise interest rates. Rather, the Federal Open Market Committee sets a target range of rates. These rates suggest the rate at which Fed member banks lend to each other.
The new range is .75 percent to 1.00 percent, which is 25 basis points (1/4 point) higher than the previous range. (The Fed kept this key rate at near zero following the financial crisis, and only signaled a change in policy in December 2015.)
“We have seen the economy progress over the last several months in exactly the way we anticipated,” Yellen said in a statement. “We have some confidence in the path the economy is on.”
In fact, the Fed is so sure of this path that it plans to raise rate two more times in 2017, and three times in 2018. This would be significant.
As Reuters points out in its coverage, “U.S. job gains have averaged 209,000 per month over the past three months, well above the 75,000 to 100,000 needed to keep up with growth in the working-age population. The jobless rate is 4.7 percent, at or near a level consistent with full employment.”
What It Means for You
But how might this impact your wallet?
If the Fed stays on this course, we could see interest rates on typical consumer loans, (mortgages, auto loans) rise by at least a full percentage point.
Prime home loan borrowers would then be looking at 30-year fixed mortgages in the 5% to 6% range, for instance.
On the other hand, savers could see CD rates again in the 3-4% APY range.
Experts sound a word of caution, though: while the Fed is on a bullish course today, this could change quickly if events in the U.S. and world economy dictate.