In a move that was widely expected by financial analysts, the Federal Reserve has raised interest rates to 1.5 percent, up from a previous range of 1.25 percent. The increase was confirmed last Wednesday, and is the third time that the Federal Reserve has raised the rate in 2017. Gradual increases have been made possible by a strengthening economy, and is being made ahead of proposed tax cut changes that will soon pass into law. Despite the increase, rates are still much lower than the last peak that occurred between 2005 and 2008. When comparing effective Federal Funds Rate data back to 1955, the current rate is still one of the lowest in modern history.
Loan and Mortgage Prices May Increase Slightly
For consumers, the change in interest rate will mean that loans become slightly more expensive, credit card interest rates could increase, and some mortgage interest rates will also increase (depending on the loan structures and agreements that are in place). Raising the interest rate will be seen as a positive by many, because it indicates confidence in the economy and its ability to continue growth in the coming months.
The United States economy has been growing at a rate of around 3 percent this year, and the incoming GOP initiated tax changes could help the economy to grow even more. Of course, that depends on whether tax cuts for middle and lower income earners are effective. With more money in pocket, consumers should be more willing to spend and may even be more likely to buy homes or take out loans.
The Federal Reserve Aims to Manage Inflation and is Positive About the Future
Healthy growth is viewed by some with caution, because stagnation of interest rates and economic boom could lead to inflation at a disproportionate rate. Some officials from within the Federal Reserve have suggested that rate increases could continue in 2018, to control the growth of the economy at a sustainable rate. Ideally, it should grow just enough to boost consumer and business spending.
Current Federal Reserve Chair, Janet Yellen, has been positive about the outlook for the coming year. She told the media last week that “When we look at other indicators of financial stability risks, there’s nothing flashing red there or possibly even orange.”
The slight increase in interest rates should work out well for consumers, businesses, and investors, providing that inflation is kept in check. Officials believe that inflation may hit up to 2 percent in 2019, which is their ideal target to be maintained. The Reserve has given other positive economic predictions, including their prediction that the unemployment rate will continue to decline up until 2019, when it should hit 3.9 percent across the country.
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