Rates on credit cards and home equity loans and credit lines, for example, will most likely rise, though probably only slightly.
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The Fed coupled its first rate hike in nine years with a signal that further increases are likely to be made slowly as the economy strengthens further and inflation rises from undesirably low levels.
Asian stock markets are rising strongly ahead of the Fed’s widely expected decision to raise rates for the first time in almost a decade.
Some had expected the Fed to scale back its forecast for the pace of its interest-rate hikes, but the Fed’s expected path still implies a more gradual tightening cycle than previous efforts. It had been at zero since December 2008.
Economist Doug Duncan told USA Today he expects 30-year mortgage rates to rise from the current 3.9 percent average to 4.1 percent over the next year, which would increase the monthly cost of a $225,000 mortgage only by $26. The housing bubble had just burst and ajor financial institutions were collapsing – or being bailed out, marking the start of a nationwide financial crisis that came to be known as the Great Recession. “The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation”.
Speaking earlier this week, Bank of Canada governor Stephen Poloz said that Canadian and American interest rate policies will continue to diverge as the gap widens between their relative economic performance. With unemployment at a low 5 percent, Fed officials decided that the economy is strong enough after seven years of record-low rates to withstand modestly higher borrowing rates. Fed officials do not expect the Fed Funds rate to reach anywhere close to “normal” until at least 2018.
For everyone who has been saying interest rates can only go up, well – now is their time.
The divergence between the Fed forecasts and the market could hurt gold prices as investors begin to align their views with the central bank. She said the Fed needed to act now before the risk of accelerating inflation becomes a threat to economic growth.
Ms Yellen indicated that Wednesday’s rate hike was partially defensive. The dollar index, which measures the greenback against a basket of six major currencies, was last up 0.21 percent at 98.426 after hitting a more than one-week high of 98.558.
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At the same time, the median projection by the FOMC foresees that rate at about 1.4% at the end of 2016, suggesting 3 or 4 more increases through next year.
