tend to pay far more attention to the swings in their
March Madness brackets than the latest moves by the
the reality is the Fedís action last week will have
more lasting impact on your wallet.
Fed moved to raise rates by 25 basis points, as
expected. The Fedís benchmark interest rate increases
to 1.5 percent to 1.75 percent.
gains have been strong in recent months, and the
unemployment rate has stayed low," the Fed said in
its statement Wednesday.
data suggest that growth rates of household spending and
business fixed investment have moderated from their
strong fourth-quarter readings."
forward, consumers will continue to see an uptick in the
cost of borrowing on everything from credit cards to car
loans to mortgages.
is the first rate hike of 2018 but itís not the last,
according to economists. Another two or three rate hikes
are anticipated for this year, according to Robert Dye,
chief economist for Comerica Bank.
interest rates are negatives for most households,"
the U.S. economy has much going for it on the upside ó
strong job growth, rising home values, some wage growth,
higher consumer confidence and a federal tax cut that is
putting more money in many wallets.
think the positives will outweigh the negatives this
year and we will see a strong year for non-auto consumer
spending," Dye said.
are some things to pay attention to now in a rising-rate
Budgets, unlike college basketball brackets, arenít
likely to be busted
theory is that the Fed has room to raise rates because
the job market is so strong. As wages rise, consumers
may not be under so much pressure to borrow or theyíd
be able to afford slightly higher rates.
rates are expected to climb gradually. So consumers
still have time to refinance or borrow earlier in the
year to avoid higher rates later on down the road.
Zandi, chief economist for Moodyís Analytics, said his
expectation is that mortgage rates and car loan rates
will be up by at least a half a percentage point a year
from now. For savers, new CD rates are expected to be
about a quarter percentage point higher a year from now.
economy is set to boom," Zandi wrote in a report
this week. "Growth is already strong ó well above
the economyís potential ó and will soon accelerate.
A massive dose of fiscal stimulus measures, including
both deficit-financed tax cuts and federal government
spending increases, has just begun to hit the
Consumers arenít stressing out
wonks and bankers keep a close eye on all things Fed.
But a recent NerdWallet survey indicated that 62 percent
of respondents claimed that they didnít know the Fed
raised rates last year. The Harris Poll on behalf of
NerdWallet surveyed 2,000 U.S. adults ages 18 and older.
of Wednesday, the Federal Reserve will have raised rates
six times since December 2015. The Fed raised rates
three times in 2017, once in 2016 and once in 2015.
Borrowing costs arenít sky high
rates rose for a good part of 2018 on strong jobs
reports. The average 30-year fixed rate has gone up to
4.54 percent from 4.15 percent in early January,
according to Bankrate.com.
costs are still relatively low, but moving higher and
thatís why consumers need to get out of variable rate
debt and lock in fixed rates to insulate themselves from
further increases," said Greg McBride, chief
financial analyst for Bankrate.com.
said heís expecting mortgage rates to remain around
4.54 percent by year end but heís expecting plenty of
volatility. At some point, mortgage rates could drop
significantly from here if geopolitical issues arise or
the U.S. economy slows down.
for other rates, McBride said heíd expect the average
five-year car loan rate to be 4.85 percent by year end,
up from 4.46 percent now.
arenít seeing anything close to the average 8 percent
for a car loan consumers faced in January 2006,
according to Jessica Caldwell, executive director of
industry analysis for Edmunds.com.
are likely to see higher rates, too. McBride expects the
average rate on a one-year CD to be 0.7 percent by year
end, up from 0.49 percent now. The average rate on a
five-year CD is expected to be 1.5 percent by year end,
up from 1.10 percent now.
Ignoring the trend toward higher rates wonít help
rates edge higher, savvy consumers will want to take
extra care to shop around for loans and CDs.
sure to pay bills on time ó and not get overburdened
with debt ó will help keep credit scores higher and
borrowing rates lower for individuals.
average rate for credit cards is the highest ever 16.84
percent ó and those rates would edge even higher once
the prime rate goes up, according to McBride.
consumers with good credit can still get 0 percent
offers for purchases and balance transfers that last as
long as 15 months," McBride said.
key, of course, involves maintaining a strong credit
Chesbrough, senior economist for Cox Automotive, noted
that rates on car loans are near five-year highs. But
rates remain relatively affordable, particularly for
those with good credit.
lending costs impact car buyers in different ways,"
Chesbrough said. "For customers with good credit,
the monthly payment on a $35,000 five-year car loan will
rise about $15 a month from a 1 percent interest rate
with lower credit scores are seeing much bigger rate
hikes on the car loans theyíre taking out.
a continuation of credit tightening, subprime borrowers
will see much larger cost differences," Chesbrough
Consumers can control some borrowing costs
credit cards have variable rates and the interest rate
goes up every time the Fed raises rates. Most home
equity lines of credit have a variable interest rate
thatís tied to the prime rate. The prime rate goes up
when the Fed raises short-term rates.
rate debt such as credit cards and home equity lines of
credit will only cost more as interest rates rise,"
balances to low rate cards, refinance into a fixed rate
home equity loan, or just pay down the debt
aggressively. But do it now."