Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Fed Finally Lifts Key Interest Rate for Now, Hike's Effect on Consumers to Be Minimal

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Fed Finally Lifts Key Interest Rate for Now, Hike's Effect on Consumers to Be Minimal

Article excerpt

Consumers should barely notice Wednesday's quarter-point rate hike - the first increase since 2006, when the Federal Funds rate stood at 5.25 percent.

But that doesn't mean the sting isn't coming.

The hurt from higher borrowing costs likely will be felt over the next couple of years as interest rate hikes are expected to pile up.

The Federal Reserve's initial quarter-point boost to a target range of 0.25 percent to 0.5 percent is "like the first dusting of snow," said Greg McBride, chief financial analyst with interest rate tracker Bankrate.com. "It doesn't tie-up traffic or cancel school, but it signals winter has arrived."

The most immediate effect will be on variable rate credit cards (almost all credit cards these days have variable, not fixed, rates), and on home equity lines of credit, where borrowers will see an increase within one to two statement cycles.

Adjustable-rate mortgages typically are repriced once a year. "If the Fed raises rates two or three times before the next adjustment rolls around, you could be looking at a sizable payment increase," Mr. McBride said.

Fixed-rate mortgages - which were averaging 3.94 percent on a 30-year loan this month, according to Freddie Mac's nationwide survey - have already edged up this year in anticipation of a rate hike. Future increases will depend on the prospects for the economy, inflation and continued Fed actions, Mr. McBride said.

On the flip side, higher rates are generally good news for savers. But don't look for deposit rates to improve much in the near-term.

"[Many] banks are flush with deposits, so they don't need to raise rates to bring in more deposits," Mr. McBride said.

The extended period of record low rates has taken a toll on banks' profit margins. "A Fed rate hike represents an opportunity to breathe some life into those margins by raising rates on loans, but not on deposits," Mr. …

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