As described further below, last Wednesday (March 16th) the Federal Reserve made their much-anticipated announcement that they were raising the fed funds interest rate a quarter point from a range of 0.0% - 0.25% to 0.25% - 0.50%. The fed funds rate is the interest rate that banks and credit unions charge when they lend to each other. The Federal Reserve also provided guidance that they expect to raise the fed funds rate to 1.9% by the end of the year. Finally, they announced in May that they were going to begin the process of reducing their $9 trillion of assets they had purchased.
So, what does this mean for us? The most significant way the increases in the fed funds rate will affect us is the corresponding increases in the prime lending rate. If you have a mortgage, home equity line of credit or any other loan with an adjustable rate, you should expect to see an increase in your interest rate at your next adjustment with further increases in the future. This could be a good time to reevaluate your adjustable-rate loans to see if a fixed rate loan could be better going forward. In other words, lock in the low interest rates before they are gone. As for the deposit rate that we all receive on our checking and savings accounts, we should expect these to move higher as well. The only problem is they tend to adjust slower then borrowing interest rates. Above all else, just remember that we have experienced interest rates significantly higher, and the world functioned just fine.