Paul Davidson USA Today With the Fed announcing another rate hike Wednesday, borrowing costs will head even higher for consumers. The good news is some bank customers will start to see noticeably higher savings rates. Americans with credit cards, adjustable-rate mortgages and home equity lines of credit will see their monthly payments rise now that the Federal Reserve has lifted its key short-term interest rate by a quarter percentage point to a range of 1.75 percent to 2 percent. All are revolving loans with variable rates that are directly affected by the Fed’s move. Car buyers may feel it, too, though they’re still benefiting from a competitive auto loan market that’s keeping borrowing costs low. Any effect on 30-year mortgages and other long-term loans would likely be muted. But consumers with bank savings accounts and CDs will benefit. “While rising interest costs constrain borrowers … savers are finally getting their day in the sun,” says Greg McBride, chief economist of Bankrate.com. More:Tesla cutting 9% of workforce and Home Depot deal, CEO Elon Musk says More:IHOP becomes IHOb, with 'b' for burgers More:Ford Explorer, Jeep Grand Cherokee get worst ratings in IIHS crash test The rate hike Wednesday becomes the second this year and the seventh since the Fed began bumping them up in late 2015. Two more hikes are now expected in 2018. Here’s how the moves could affect consumers: Credit cards, HELOCS, adjustable-rate mortgages These loans will become more expensive within weeks since their rates are generally tied to the prime rate, which in turn is affected by the Fed's benchmark rate. Average credit-card rates are 17 percent, according to Bankrate.com. For a $10,000 credit-card balance, a quarter-point hike is likely to add $25 a month in interest, according to Steve Rick, chief economist of CUNA Mutual Group. Four rate increases this year could mean an additional $100 in monthly interest. LendingClub advises people to consolidate their credit-card debt with a personal loan. Rates for home equity lines of credit are much lower at 5.92 percent. A quarter-point increase on a $30,000 credit line raises the minimum monthly payment by just $6 a month. By contrast, rates on adjustable-rate mortgages are modified annually. So the impact may be delayed, but then it could bite. Four quarter-point hikes in 2018 likely would boost the monthly payment on a $200,000 mortgage by $84 to $112. Fixed-rate mortgages The Fed’s key short-term rate affects 30-year mortgages and other long-term rates only indirectly. Those rates correlate more closely with inflation expectations and the long-term economic outlook. The average 30-year fixed mortgage rate already has climbed from 4.15 percent to 4.54 percent since Jan. 1 largely because investors expect federal tax cuts and spending increases to push inflation higher. But the rate is down from a recent high of 4.66 percent in late May. The likely rate hike on Wednesday is already figured into mortgage rates. For home buyers, any impact on the monthly bill would probably be relatively small. By year’s end, a quarter-point rate increase on a $200,000 mortgage would boost the monthly payment by about $30. Existing fixed-rate mortgages are not affected. Other Fed moves could also play a role. In September, the Fed announced that it’s gradually shrinking the bond portfolio it amassed during and after the financial crisis in a bid to lower long-term rates. That likely has a greater effect on fixed mortgage rates, according to Tendayi Kapfidze, chief economist of LendingTree. Auto loans A quarter-point rate hike theoretically would get passed on to new auto loans, increasing the monthly payment for a new $25,000 car by $3. Existing loans would be unchanged. But competition among lenders is holding down auto loan rates, McBride says. That could mean an even smaller monthly increase. Five-year auto loan rates are currently at 4.71 percent. Bank savings rates Since banks will be able to charge a bit more for loans, they’ll have a little more leeway to pay higher interest rates on the deposits customers make. Don’t expect a fast or equivalent rise in your savings accounts or CD rates, many of which pay interest of 1% or less. Those rates have barely budged the past year despite the Fed’s hikes. Low rates on loans have meant narrow profit margins for banks for years. They can now benefit from a bigger margin between what they pay customers in interest and what they earn from loans, McBride says. And since they’re still flush with deposits, they don’t need to attract more to make loans. Yet a handful of online and community banks, credit unions and money market mutual funds that are hungrier for deposits are paying as much as 2.5 percent on a one-year CD, up from 2.15 percent in March. Fed rate hikes this year should help boost the top rate to 2.8 percent to 3.1 percent by December, McBride says. And top savings and money-market rates are nearing 2 percent. That's about the rate of annual inflation. "Being able to earn more than inflation is something savers haven't seen in a decade," McBride says.<doc-sep>With the Federal Reserve's latest quarter-point interest rate increase, the seventh such hike in two years, some consumers may need a life jacket. The Fed move pushes the funds rate target to 1.75 percent to 2 percent. That rate, of course, is closely tied to consumer debt, particularly credit cards, home equity lines of credit and other adjustable-rate instruments. "Over time, that cumulative effect is growing," said Greg McBride, the chief financial analyst at Bankrate.com. For the average American, recent signs of rising inflation, which pushed the central bank into hiking rates beginning in 2015, aren't necessarily bad. They're generally considered an indication that the economy is doing well, and pave the way for raises and a better return on your savings. However, in daily life, higher interest rates mean that you'll have to pay up to access credit. That includes how much you owe in interest on credit cards or a home equity line of credit. If you're concerned about what an additional increase in the Fed's benchmark rate will mean for your own bank account, mortgage or credit card, as well as student debt, home equity loan and car payment, here's a breakdown of what's in store — and what you should do about it. Credit cards For starters, credit card rates are already at a record high of 17 percent on average, according to Bankrate. Most credit cards have a variable rate, which means there's a direct connection to the Fed's benchmark rate, and as interest rates rise, card holders will continue to get squeezed. The typical American has a credit card balance of $6,375, up nearly 3 percent from last year, according to Experian's annual study on the state of credit and debt in America. Total credit card debt has reached its highest point ever, surpassing $1 trillion in 2017, according to a separate report by the Federal Reserve. Tacking on a 25-basis-point increase will cost credit card users roughly $1.6 billion in extra finance charges in 2018, according to a WalletHub analysis. Factoring in the six previous rate hikes, credit card users will pay about $9.8 billion more in 2018 than they would have otherwise, WalletHub said. What you can do about it: Shop around for a better rate or snag a zero-interest balance transfer offer to insulate yourself from further rate hikes. Then, begin to aggressively pay down your balance. "Make hay while the sun shines," McBride said. Mortgages The economy, the Fed and inflation all have some influence over long-term fixed mortgage rates, which generally are pegged to yields on U.S. Treasury notes, so there's already been a spike since since the Fed started raising rates. The average 30-year fixed-rate is now about 4.7 percent, up from 4.09 percent in 2015. That has cost the average homebuyer roughly $42,000, WalletHub found. Many homeowners with adjustable-rate mortgages or home equity lines of credit, which are pegged to the prime rate, will also be affected. What you can do about it: Those with an ARM can still refinance into a fixed rate that's lower than what your ARM will adjust to later this year, McBride said, "but you have to act quickly." If you have a HELOC, ask your lender to freeze the interest rate on your outstanding balance or consider refinancing into a fixed-rate home equity loan, although that puts a cap on how much money you can access, McBride added. Auto loans For those planning on purchasing a new car in the next few months, today's change likely will not have any big material effect on what you pay. A quarter-point difference on a $25,000 loan is $3 a month, according to McBride. "Nobody is going to have to downsize from the SUV to the compact because of rates going up," he said. Currently, the average five-year new car loan rate is 4.71 percent, up from 4.34 percent when the Fed started boosting rates, while the average four-year used car loan rate is 5.4 percent, up from 5.26 over the same time period, according to Bankrate. What you can do about it: If you are car shopping, start by checking that your credit is in good shape, negotiating the price of your vehicle and shopping around to secure the best rate on your financing. "There are plenty of low rates still available, particularly if you have good credit," McBride said. Savings Stashing some cash in a savings account has not yielded very much, aside from peace of mind, until recently. While the average interest rate on a savings account is still only 0.09 percent, some top-yielding savings accounts are now as high as 2 percent, up from 1.1 in 2015, according to Bankrate. With a savings rate, or annual percentage yield, of 0.09 percent, a $10,000 deposit earns just $9 after one year. At 2 percent, that same deposit would earn $200. What you can do about it: Look for those significantly higher savings rates by shopping around or switching to an online bank. (Online banks are able to offer higher-yielding accounts because they come with less overhead expenses than traditional bank accounts.) If you're not keeping pace with inflation, you are losing money. Greg McBride Bankrate's chief financial analyst "The Federal Reserve is trying to get inflation to 2 percent — don't ignore that," McBride said. "If you're not keeping pace with inflation, you are losing money." Student loans<doc-sep>The Federal Reserve, seeing a quickening of economic growth and suggesting a bit more concern about inflation, raised interest rates for the second time this year — and signaled two more rate hikes for the second half of this year. The central bank’s announcement Wednesday to nudge up its benchmark rate by another quarter of a point, to a range of 1.75% to 2%, was widely expected. It marked the seventh rate increase since the Great Recession, and reflected policymakers’ confidence that the solidly growing economy could handle additional rate increases. “The economy is doing very well,” Fed Chairman Jerome Powell said at a news conference, shortly after issuing a Fed statement that was equally upbeat. “Most people who want to find jobs are finding them, and unemployment and inflation are low.” “We think that gradually returning interest rates to a more normal level as the economy strengthens is the best way the Fed can help sustain an environment in which American households and businesses can thrive,” he said. Advertisement Stock market investors, however, did not like the Fed’s slightly more aggressive stance on removing monetary stimulus, as several years of very low interest rates and inflation had supported the bull market. Both are on their way up. The Dow and broader Standard & Poor’s 500 index dropped after the Fed news and closed out the day nearly half a percent lower. The central bank now expects to raise rates twice more this year, instead of the one time that it forecast in March. And three rate hikes have been penciled in for next year when monetary policy is expected to be no longer stimulative. Rising Fed rates will put a further squeeze on some households as interest rates for credit cards, car loans and home equity lines of credit move higher with the central bank’s policy actions. “If you want to be on the right side of rising interest rates, you need to be a saver, not a borrower,” said Greg McBride, chief financial analyst at Bankrate.com. “This is a time you want to be funneling money into reserves and building up for an eventual downturn.” Analysts said most households, though, would be able to absorb the higher borrowing costs, benefiting in part from the tightening labor market that should lead to higher wages. Powell said, “You will see wages go up, you’ll see people at the sort of the margins of the labor force having an opportunity to get back in work. They benefit from that, society benefits from that.” He added that “you do not see excess credit growth” for households, while bank leverage is “significantly lower.” Thus far, workers’ earnings have yet to break out from their middling pace. The U.S. Bureau of Labor Statistics this week released data showing that average hourly earnings for production and nonsupervisory employees, when accounting for inflation, increased 0.1% from April to May on a seasonally adjusted basis. But hourly earnings fell 0.1% from May 2017 to May 2018, even as weekly earnings rose 0.5%, reflecting a longer workweek. Carl Tannenbaum, chief economist at Northern Trust in Chicago, said it should be noted that “interest rates remain awfully, awfully low.” For businesses, he said, “they’re not at a level that should be stifling credit conditions, which broadly are quite easy.” Advertisement Tannenbaum also said that he was reassured to see that Powell, a noneconomist who took the helm at the Fed in February, appeared much more comfortable than at his first hourlong news conference in March, providing clear, plain-spoken answers. The quarterly meeting with journalists to explain Fed policy has been a staple since 2011. Powell said Wednesday that he would hold a news conference after every policy meeting, or eight times a year, starting next January. In its statement, the Fed said the economy “has been rising at a solid rate,” an upgrade from its assessment in May when policymakers last met and described the economy as advancing moderately. Fed policymakers saw more robustness in consumer spending of late and said business investment “has continued to grow strongly.” Powell indicated that the GOP tax cuts that took effect this year would boost growth. “It makes sense that if you lower corporate tax rates and — and allow faster expensing of investment, you will encourage greater investment, that should drive productivity, that should increase potential output,” he said. Asked whether workers would share in the corporate tax cuts, he replied: “We don’t have the tools to — to control that.” The central bank’s updated projections showed that policymakers’ median expectation for economic growth for this year rose a notch to 2.8% from 2.7% in its previous forecast in March. Advertisement The Fed’s growth forecast for 2019 and 2020 was unchanged, at 2.4% and 2%, respectively. These figures are still considerably below what Trump administration officials at various times have promised or projected. In expecting four rate hikes this year, and staying with three increases for next year, Fed policymakers appeared to be a little more concerned about rising prices and guarding against the risks of an inflationary surge. The latest government data indicate inflation ticking up recently very close to the Fed’s 2% target, which policymakers acknowledged in their statement Wednesday. The Fed’s new projection sees inflation moving up to 2.1% this year, compared with 1.9% in its March forecast. As employers increasingly struggle to find workers — the jobless rate in May matched an 18-year low of 3.8% — wage gains could accelerate. The Fed’s latest projection now sees the unemployment rate dropping to a half-century low of 3.6% by the end of this year and sliding to 3.5% in the next two years. Advertisement Another factor that could add inflationary pressure is the uncertainty over trade. The Trump administration’s move to impose tariffs on steel and aluminum imports already has increased prices paid by construction firms and other metal users, and some of those costs are likely to spill down to consumers. Ryan Sweet, an economist at Moody’s Analytics, noted, for example, that washing machine prices have soared since the administration slapped tariffs on imported washers. “The price increases businesses feel will start to intensify in the coming months,” Sweet said, although he doesn’t expect inflation to get out of hand. There are rising concerns about trade more generally and the potential risks to the economic outlook. The Fed’s so-called beige book, an anecdotal account of business and economic conditions, reported that tariffs and the threat of a trade war with China have begun to affect capital projects and disrupt supply chains. The central bank did not make a special note of trade in its statement, and Powell deftly deflected questions about rising trade friction. Advertisement “I’m really committed to staying in our lane on things. We have very important jobs assigned to us by Congress, and that’s maximum employment, stable prices, financial stability. Trade is explicitly assigned to the executive branch by Congress and not to us,” he said. He said that “there is concern that trade changes could be disruptive,” but noted that “we don’t see it in the numbers yet.” Diane Swonk, chief economist at the consulting firm Grant Thornton in Chicago, said she was a little surprised that Powell did not express a bit more concern about the potential economic effects of severe trade actions. “There is a real risk of a full-blown trade war, but until it happens I can understand his reluctance to put too much weight on it because of how rapidly policy seems to change in this administration,” she said. “This is where Chairman Powell as a non-economist can be a little more vague, and it’s probably wise to do so, because if you get too much in the middle of it you’re going to be a target.“ Advertisement don.lee@latimes.com Follow me at @dleelatimes UPDATES: Advertisement 5:15 p.m.: This article was updated with more details about the Fed’s decision, economic analysis and comments from several analysts. 11:40 a.m.: This article was updated with a comment from Fed Chairman Jerome Powell. This article was originally published at 11 a.m.<doc-sep>
The Federal Reserve is widely expected to again raise its key short-term interest rate today as U.S. economic growth remains strong and unemployment is at an 18-year low. The bottom line for borrowers: Everything from credit cards to auto loans to mortgages is about to become more expensive. The Fed's monetary policymakers are likely to add another quarter-point to the central bank's key interest rate, putting it at 1.75 percent to 2 percent, the highest since 2008, economists said. The Federal Open Market Committee, the central bank's rate-setting panel, is scheduled to issue its latest policy statement at 2 p.m. Eastern time. Fed Chairman Jerome Powell will give a news conference 30 minutes later to explain the decision. This would be the second of as many as four interest rate hikes this year. The Fed last raised its benchmark rate a quarter-point in March, moving it into the range of 1.5 percent to 1.75 percent. The most immediate affect for consumers will appear in the form of higher interest rates on credit cards, home equity lines of credit and adjustable rate mortgages, said Greg McBride, chief financial analyst for Bankrate.com. The average credit card now charges a record-high 17 percent, and that will climb further, he said. For borrowers with adjustable-rate mortgages, the affects could be dramatic, he said. "If your variable-rate mortgage only adjusts once a year, and there were three interest rate hikes in that year, borrowers should hang on because the monthly payment difference could be a doozy." Rates on new mortgages and car loans will also go up, resulting in higher monthly payments, he said. Fixed rates have been on the rise, with the benchmark 30-year mortgage rate recently hitting a seven-year high of 4.8 percent during the week of May 23 before retreating. On the other hand, rates on interest-bearing instruments like savings and checking accounts will tick up, benefiting consumers who save. "While rising rates are good for savers, they can't sit back and wait for improving returns to come to them," McBride said. "Savers need to aggressively pursue the banks and credit unions with the best rates." The best savings account rate is 2.05 percent, almost 23 times the national average of just 0.09 percent, according to Bankrate.com. The Fed's latest rate actions are a result of its dual mandate: to keep inflation in check and to optimize employment. Unemployment has steadily declined, reaching 3.8 percent in May. U.S. economic growth is expected to be in the range of a robust 4.1 percent to 4.5 percent in the second quarter, according to notes by the Federal Reserve Bank of Atlanta and independent research firm Macroeconomic Advisers. The strong economy is causing an increase in demand for resources, a moderate rise in wages and nonlabor costs, heightening inflationary fears, said Kathy Bostjancic, an economist with Oxford Economics, in a research note. The Fed raises interest rates to cool down the economy and keep prices in check. "Market participants will scrutinize the policy statement and press conference for hints on whether the Fed leans toward three or four rate hikes this year," she said. "We continue to believe it will be four." The current inflation rate is 2.5 percent for the 12 months ended April 2018, according to the U.S. Labor Department. The Fed has an annual inflation target of about 2 percent, Bostjancic said. However, "in the near-term, many policymakers anticipate inflation to overshoot the 2 percent target for a period of time," she said. The stock market has already factored in a rate increase and shouldn't have a strong reaction if that is the Fed's decision this week, according to a note by TD Securities. "The market is extremely well priced for a June rate hike, and the Fed will not disappoint," the note said. TD Securities is expecting three rate increases in 2018. "The price of money is rising, and as it continues to rise it will buffet financial markets, leading to greater volatility. This is normal." McBride said. "Investors shouldn't be taken aback and should stick with their current investment strategy."