What does it mean when the Fed boosts interest rates?

After a year of hinting and retreat, officials of the Federal Reserve have finally voted to change their long-standing policy of stimulating the economy with near-zero interest rates. With the U.S. economy growing, the Federal Reserve’s Open Market Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent.

What does this mean?

This is a very modest increase, from a point of near-zero that has stood since the Great Recession. In fact, the Federal Reserve hasn’t moved to increase rates in a decade.

The other thing to keep in mind is that the Federal Reserve doesn’t literally control the rates you pay on auto loans and credit cards. The FOMC policy is all about the rate that banks in the Federal Reserve loan money to one another. The Federal Reserve’s policy has traditionally influenced the larger financial system.

If the Federal Reserve keeps pushing rates upward, we may once again see 30-year fixed mortgages in their historic 7-9 percent range. Credit card rates could move higher as well. Credit may be less easily obtained by people who have less-than-stellar credit scores.

What will change?

For now, though, the changes should be minimal. We may see shorter “teaser” terms on zero-interest credit card offers. Mortgage rates may continue to creep up.

Consumers should pay attention to any notices from their creditors in the months ahead. Some credit card companies will undoubtedly take the opportunity to raise rates on some customers. And those with variable-rate mortgages should look into locking into a fixed rate mortgage.

This move by the Federal Reserve is really a “heads up” to remind us that we’ve had very low rates for many years now. Things may be getting back to normal.

Visit our website for current interest rates

You can visit www.traviscu.org for a list of our current interest rates or call (800) 877-8328. Our branches and Member Service Center representatives can help you with your financial questions, including how our low-rates can lower your monthly payments on auto loans and home loans.

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