Fed Ratchets Up Short-Term Rates, Signaling All Is Chugging Along

The Federal Reverse yesterday raised short-term interest rates by a quarter point as expected, and indicated another bump will come later this year. It’s all good, say most observers.

“The overarching message the Fed sent Wednesday was an upbeat one: It believes the U.S. economy is on firm footing as it enters its ninth year of recovery from the Great Recession, with little risk of a recession. Though the economy is growing only sluggishly and though inflation remains chronically below the Fed's 2% target, it foresees improvement in both measures over time,” writes the Associated Press’ Martin Crutsinger on ABCNews.com.

“Credit-card users, home-equity borrowers and homeowners with adjustable-rate mortgages will likely see their monthly payments rise as the Federal Reserve’s interest rate hike Wednesday ripples across the economy,” writes Paul Davidson for USA Today

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“All of those revolving loans have variable rates that go up or down based on the Fed’s benchmark short-term rate. …Car buyers may be affected, too, though they’re now benefiting from a highly competitive market for auto loans that’s keeping borrowing costs low,” he continues.

Also on the plus side: Savers will see money earn a tad more in their bank accounts — money for a rainy day or a major purchase down the line. Unless it’s eaten up by an increase in their monthly card payments, of course.

“Most credit cards these days have a variable rate, which means there’s a direct connection to the Fed's benchmark rate. The quarter-percentage-point rate hike means you’ll pay an extra $2.50 a year for every $1,000 of debt, according to NerdWallet,” writesCNBC’s Jessica Dickler.

“That will cost credit card users roughly $1.5 billion in extra finance charges during 2017, according to a WalletHub analysis. Factoring in the three previous rate hikes, credit card users will pay about $6 billion more in 2017 than they would have otherwise, WalletHub said.”

Fixed mortgage rates are not expected to rise, however. That should help to keep the home-buying marketplace — and all the goods and services associated with it — sizzling for the nonce. 

“Before this third short-term rate hike in just six months, fixed-rate mortgages were barely off 2017 lows. The experts have been predicting a gradual rise in home loan interest rates for months, but rates have head-faked their way lower since the Fed’s last rate increase in March,” NerdWallet’s Hal Bundrick writes for USA Today. “Why is that happening?”

Mortgage Bankers Association chief economist Mike Fratantoni provides an answer: “Even though the U.S. economy is really looking pretty strong right now, particularly in the job market, the rest of the world is lagging behind. So central banks elsewhere are still aggressively stimulating their economies and keeping their rates low, and that’s acting as a bit of an anchor on longer-term rates” he says.

“Mortgage rates, particularly the very popular 30-year, fixed-rate mortgage, are benchmarked to the 10-year Treasury bond,” Mark Fleming, First American Financial Corp.’s chief economist, tells  HousingWire’s Kelsey Ramírez. “A wide range of global political and economic factors can influence the yield on long-term bonds, such as the ten-year Treasury bond.

“For example, last summer the Brexit vote caused a ‘flight to safety’ and increased demand for U.S. Treasury bonds,” Fleming continues. “In the week following the Brexit vote, the yield on the 10-year Treasury declined by 0.3 percentage points and the mortgage rate fell from 3.56% to 3.41%.”

Yesterday’s “hike was as expected, with policy makers voting to raise interest rates to a range of 1% to 1.25%, despite weaker inflation and some signs of economic softening. The central bank still sees the economy reaching its 2% inflation goal,” reports Johanna Bennett for Barron’s. “The Fed still eyes one more rate hike this year, highlighting a rosier job market.”

Well, in some fields, perhaps. In journalism, not so much.

“It was a bloody Wednesday in an already wretched week for the risky journalism business as both HuffPost, the popular news and opinion site launched a dozen years ago by pundit-turned-lifestyle guru Arianna Huffington, and Vocativ, the four-year-old multimedia venture of Israeli tech and security tycoon Mati Kochavi, abruptly fired dozens of writers and editors,” Lloyd Grove reports for the Daily Beast.

“The corporate carnage — in which HuffPost laid off 39 staffers and Vocativ cut its entire 21-member newsroom — came a day after Time Inc., the once-indomitable magazine empire, announced the dismissals and voluntary buyouts of 300 staffers at such marquee titles as TimeSports Illustrated, and Fortune,” he continues.

But apparently, we have not reached the point where the Google/Facebook duopoly has a direct effect on short- or long-term interest rates. Yet.

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