Just as many had predicted since October, the US Federal Reserve has chosen to increase its’ rate by 0.25% marking the first increase in over a decade. With spending among businesses and households increasing steadily for months and with the housing market meeting growth forecasts, this was seen by many as an obvious decision and by many traders as a decision that should have been implemented months back.
An interest rate hike was not just designed to help Wall Street traders increase their bank accounts, nor was it designed to create an unstable volatility in the market place. The US has already worked the increase in to many of their calculations so we are unlikely to see any major valuation changes in stock and bond prices, but for the average Joe out there, what is a change like this likely to mean?
For home owners with mortgages or outstanding loans, this is unlikely to cause any major concerns with monthly interest payments making only marginal increases courtesy of the 0.25% rise. People looking to buy cars or automobiles also need not worry as the industry is so competitive at the moment that the hike is unlikely to be passed on or much less noticed by consumers. However, those who were hoping to see their savings increase faster or were planning on fast-tracking their retirement should not hold out hope just yet, with the rates likely to be passed on to borrowers a lot faster than savers. If the other predicted rate increases that the FED are talking about actually happen next year, that is when the US market and global markets are likely to feel the true repercussions.
Should the rate rises actually achieve the designated 1.5% that the US central bank would like to see it at next year, anyone with outstanding debts in the forms of mortgages or borrowings on credit cards are likely to find themselves sprawling for fixed-rate options or interest-free transfer alternatives as the market struggles to adjust to the new inflation. While investors and savers may benefit from it, it is widely perceived by many of the major financial institutions that these augmentations could end up turning sour and plunge the US back into further problems, which will in turn cause them to re-adjust their rates yet again and start the decade-long issues all over again. So for all the average Joe’s out there, feel free to keep an eye on the mortgage opportunities on offer or wait a little longer before you make that new house or car purchase as hikes generally mean less customer demand and subsequently better offers. With a reported 7.3% increase in mortgage applications this week alone, be sure to get make your decision fast though or avoid disappointment. Or at the worst case, why not have a go at playing the markets and see if you can make up the differences that will no doubt be passed on to you. Just remember to check out the guides before you give it a try.
