Newspaper article The Record (Bergen County, NJ)

Rate Hike Seen as Strong Bet

Newspaper article The Record (Bergen County, NJ)

Rate Hike Seen as Strong Bet

Article excerpt

Economists and other market watchers expect the Federal Reserve to show its confidence in the strength of the U.S. economy today by ratcheting up its benchmark short-term interest rate for the first time since 2006.

The long anticipated hike of the federal funds rate -- to 0.25 percent from near 0 percent -- by the Federal Open Market Committee is almost a foregone conclusion, Fed watchers say.

"Most of us would be really shocked if it didn't happen," said Joel Naroff, president of Naroff Economic Advisors in Holland, Pa. "But with the Fed, you never say never."

A decision is expected to be announced after the central bank's two-day meeting, which concludes at 2 p.m..

If the widely anticipated increase occurs, it will signal the beginning of what policymakers have indicated would be a gradual change from a low-rate climate to a more normal rate environment, ideally, where unemployment remains low, the economy grows at a moderate pace without the stimulus of near-zero rates, and inflation is kept in check.

Prime lending rates, what banks charge their best customers, would gradually move closer to 5 percent. The current Wall Street Journal Prime Rate, based on surveys of large banks, is 3.25 percent. Many homeowners and businesses have been benefiting from historically low rates of less than 4 percent.

Today's anticipated hike will be "like the first dusting of snow, signaling a change in the season," said Greg McBride, chief financial analyst at Bankrate.com.

For consumers, who have been paying rock-bottom rates on their borrowings these past seven years, a 0.25 percentage point increase will only slightly boost the interest they pay on credit cards, automobile loans and adjustable-rate mortgages, and will, at least at first, be "inconsequential" to household budgets, McBride said. But the pace of future increases bears watching, he said. …

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