On May 2, the Federal Reserve opted to hold interest rates at their current level instead of increasing them. The Fed expects a recent upswing in inflation to hold steady and will help increase borrowing costs come June.
What the Increase in Inflation Means
While the Fed acknowledged inflation was increasing, it didn’t appear concerned about what the inflation or a downtick in the economy’s growth would mean to any other gradual rate increases they’ve been eyeing, Reuters reported.
Of particular interest to the officials is that inflation overall and inflation for things other than staples like energy and food have edged closer to 2 percent. That 2 percent figure is the benchmark the Fed likes to see for inflation.
The Federal Open Market Committee, the committee that sets the rates, didn’t seem worried about the recent downtick in the economy, particularly with the job increases overall in the past few months. The decision was unanimous to leave the overnight lending rate between 1.50 and 1.75 percent.
What’s On the Horizon for Rates
The rates were last raised in March, and the Fed has been anticipating two additional increases this year. Some officials think there should be three instead of two. Most experts are anticipating an increase in rates in June.
“I think a June rate hike is a done deal unless something dramatically changes between now and June,” Stephen Stanley, Amherst Pierpont Securities chief economist, said to Reuters.
The Fed clamped down on rates toward the end of 2015 before increasing rates one time in 2016. But as the economy grew stronger and the labor market improved, it raised borrowing costs three times in 2017.
Currently, the economy is having the second lengthiest upswing since the 1940s.
What Rate Increases Mean for Borrowers
Borrowers should always pay attention when the Fed anticipates raising rates because a change in interest rates can affect their bottom line.
Credit card holders generally see a quick impact on their interest rates. That’s because their rates are directly based upon a bank’s prime rate. A bank’s prime rate is generally set three percentage points more than the highest range of the Fed’s interest rate.
An increase in the Fed’s rates can mean an increase for every cardholder, even those who get a better rate from a credit card company because of their high credit scores.
The next to feel the sting are usually those with student loans. Those with fixed-rate loans won’t see a change, but those with variable rates will.
Because mortgage companies generally offer 15- to 30-year loans, they are less reactive to small changes. The people who will be affected by the increases are those who have entered into an adjustable rate mortgage or those who are looking for a new mortgage.