easy money officially ends Wednesday, as interest rates,
much like summer temps, heat up once again.
a "slam-dunk" that the Federal Reserve will
increase rates by a quarter point after its meeting this
week, according to Mark Zandi, chief economist for Moody’s
it’s likely we’re in for two more quarter-point
hikes in September and December, he said.
you are thinking about buying a car or home, sooner is
better than later, but I wouldn’t rush into anything,
as rates, while rising, are still very low," Zandi
U.S. economy — with a national jobless rate at 3.8
percent in May, the lowest level in 18 years — has put
the Great Recession in 2008-09 in the rear view mirror.
Consumers — as well as business leaders — are
formulating strategies to cope with higher rates ahead.
Fed began gradually tightening money with the first
quarter-point rate hike in December 2015 — then the
first rate hike in nearly a decade. Since then, there
have been another five rate hikes. The latest rate hike
in March took the Fed’s benchmark rate to a target
range of 1.5 percent to 1.75 percent.
the Fed raises rates as expected Wednesday, the
overnight borrowing cost will be in line with the Fed’s
inflation target of 2 percent. For the first time in
almost a decade, the cost of borrowing will no longer be
essentially free. Say good-bye to super-cheap cash.
the economy keeps doing well, some expect two or three
more rate hikes in 2019, too.
Fed noted in its statement in March that the "labor
market has continued to strengthen and that economic
activity has been rising at a moderate rate. Job gains
have been strong in recent months, and the unemployment
rate has stayed low."
hearing business news that makes sense in a higher rate
environment. Flagstar Bank announced last week that it
plans to acquire 52 bank branches from Wells Fargo,
including 14 in Michigan’s Upper Peninsula.
strategy includes snagging 200,000 more customers as a
way for Flagstar to gain lower-cost deposits to support
loan growth and move away from higher-cost borrowing
from the Federal Home Loan Bank of Indianapolis.
acquisition — which adds about 49 percent more bank
branches to the total Flagstar network — should be a
positive move in a "rising interest rate
environment," wrote Bose George, banking analyst
for Keefe, Bruyette & Woods, in a report Tuesday.
acquisition, which could be completed in late October,
is another sign that the bank, which relied heavily on
national mortgage banking, is putting its deep troubles
from the financial crisis behind it.
arms of automakers are expected to depend more on their
in-house lending arms to finance the purchase of cars
and trucks as rates go up. Fiat Chrysler Automobiles
announced plans to rebuild its own captive finance arm
either via a start-up or through an acquisition.
old Chrysler Financial had once been the captive lending
arm of the automaker before the financial meltdown in
2008-09. Its operations were reduced as part of a U.S.
government-sponsored bankruptcy restructuring of
Chrysler in 2009.
Capital Management later announced an agreement in
December 2010 to sell Chrysler Financial to TD Bank
finance arms — like those at Ford and General Motors
— can subsidize loans to qualified buyers and finance
inventories as other lenders limit their exposure to
auto loans in a weaker economy.
too, need to plan for the inevitability of higher
interest rates ahead. Here are some rate hikes to watch:
rates are ahead for student loans
interest rates on new federal student loan interest
rates are set to jump higher July 1.
fixed interest rate on federal student loans will
increase to 5.045 percent, up from 4.45 percent for
undergraduate Stafford loans.
rate goes up to 6.595 percent, up from 6 percent for
Stafford loans for graduate school.
who borrow to help out their college age children can
expect to pay 7.595 percent, up from 7 percent, for the
federal parent PLUS loans. The same rate applies to the
Federal Grad PLUS loans.
rates on existing loans do not change, said Mark
Kantrowitz, publisher and vice president of research for
increase only affects new loans made on or after July 1.
Kantrowitz said the new rates are based on the last
10-year Treasury Note auction in May.
rates will apply to new loans made beginning July 1
through June 30, 2018. The July 1 rate hike does not
apply to private student loans.
mortgage rates if home shopping
right now indicate that mortgage rates will be trending
higher in the months ahead. The 30-year fixed rate is
expected to move closer to 5 percent by year end and
possibly nearer to 5.5 percent by June 2019, according
to Keith Gumbinger, vice president for HSH.com.
average 30-year fixed rate was 4.54 percent last week,
down from 4.56 percent a week earlier. By contrast, the
30-year rate averaged 3.89 percent a year ago.
lot depends on inflation and the Fed," Gumbinger
said. "Some economists are predicting that the next
recession might show up in perhaps 2020."
late 2019, it’s possible that mortgage rates would be
at their peak and then trend downward if the economy
turns more sluggish and moves into a recession, he said.
card rates are edging higher
credit card rates are variable — meaning they will
edge higher with each rate hike by the Federal Reserve.
average variable rate was 16.75 percent in early June
— up from 15.83 percent a year ago and as low as 14.99
percent in June 2015 before the Fed’s first modest
rate hike in December 2015, according to CreditCards.com.
interest rates mean more of your spending money is going
toward paying down existing debt on credit cards.
families who are already living paycheck to paycheck
could want to carefully take steps to pay down what
credit card debt they can going forward.———