How a Fed Rate Hike Would Affect Millions of Americans
The Federal Reserve did not push through with the interest rate hike Thursday, but there is still a big possibility that it will later this year. A rate hike would have big effects on millions of Americans, especially those who have credit cards, savings accounts, 401(k) investments, market investments, and those who are planning to buy a car or a house.
Feds brought interest rates to zero in December of 2008, stimulating the economy and the housing market during the onslaught of the Great Recession. This improved the economy.
CNN Money gave important information on how a Fed rate hike would affect individual Americans.
First of all, the fed rate hike doesn't necessarily mean an overnight significant increase in interest rates. People don't have to be rich to buy cars or houses. If there should be Fed rate hike, it will start at 0.25% from 0%.
According to The Fiscal Times, San Francisco's RPM Mortgage senior loan officer, Dick Lepre said, mortgage rates are not connected directly to the federal fund rate, which means it is difficult to predict how they would respond.
Bankrate warns not to expect large banks to begin offering higher interest rates immediately. According to NBC News, bank savings account and certificate of deposit (CD) interest rates are low since 2008's Fed rate cut. The national average it 0.06 percent. When the Fed will increase interest rates, savers will experience higher yields from their accounts. According to the US Census, savings account rates were about 3 percent in average in 2007.
Fed Rate hike is also very important for people who have invested in the stock market, ETFs, or even those with 401(k) savings. A Fed rate hike means more volatility in these investments. However, this will also be very important for investors' portfolios.
Even though the Fed is considered as the World's Central Bank, because it is very influential to global economies, financial problems abroad could still have adverse effects on the US. One of the best examples is the recent and ongoing Chinese economic meltdown, which has devastated the US stock market as well.
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