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Fed 2017 March rate hike impact: Who will take first hit?
16/03/2017
Fed 2017 March rate hike impact: Who will take first hit?

Fed 2017 March rate hike impact: Who will feel the influence of an increase in the benchmark rate first? How large is the impact?

16 March, AtoZForex How do interest rate hikes work? In case you are a borrower, you are going to pay. In case you are a saver, you are not going to get paid. This is as simple as this.

Fed 2017 March rate hike impact

Only yesterday, the members of Federal Open Market Committee (FOMC) have raised the rates once more. Last time the policymakers have increased the borrowing costs – in December 2016. Prior to this, the interest rates rose a year before, in December 2015. As of now, the interest rates across the US stand at 1%.

As FOMC has raised the benchmark rates by 0.25% yesterday, the effects will be seen immediately for some. Who is going to take the first hit?

Those who has revolving debt could expect the increases in their payments in the period of next 60 days. Homeowners with adjustable-rate mortgages will feel the hit when their loans get reset. However, savers most likely will not get much of the benefits for quite some time. The chief financial analyst at Bankrate, Greg McBride, has stated:

“If the Fed hikes rates three times this year, that could make your next payment a doozy. Borrowers are “going to start to notice, and the cumulative effect becomes significant.”

For instance, a homeowner with a mortgage worth of $200,000 could expect a payment increase of nearly $60 a month, according to Mr. McBride. He has added that the owners of larger loans could see increases of $100 -$150 depending on the speed of Fed moves.

Are you a borrower?

As of now, the Fed is on its track to fulfill its expectations of three rates hikes in 2017. The central bank policymakers have stated that they would hike the rates three times during the current year. Current market’s expectations stand at March, June, and December rate hikes.

Mr. McBride has stated that the first borrowers to feel the Fed 2017 March rate hike impact are the credit card holders. Moreover, these people include borrowers with home equity lines of credit. As Mr. McBride believes, these people will see an impact on their payment within 60 days. In this period, credit companies are adjusting to the new benchmark rate.

The prime rate now stands at 3.75 percent and it will be immediately changed in accordance with the new interest rate. Credit firms use the prime rate as a baseline for what they charge clients. This is usually the prime plus a particular level.

Are you a saver?

As for saver, Fed 2017 March rate hike impact it is a completely different story.

A lot has been made over the concerns that holders of saving accounts and certificates of deposit, and pensioners have been negatively affected in a low-rate environment. Currently, savings accounts on average pay 0.11 percent in interest, where 1.25 percent are the high end, as per the Bankrate. Moreover, one-year CDs are paying nearly 1.24 percent.

Additionally, banks are favoring higher rates, as historically they always push the margins higher. Yet, Mr. McBride states:

“If you’re just hunkering down at your financial institution and expecting better returns to land on your lap, you’re going to be disappointed. Banks have not increased rates of returns on deposits, and they’re not in a hurry to do so.”

This implies that deciding where to place your money is a very very important decision. Mr. McBride has added:

“The (banks) inclined to increase deposit rates (are) the ones already paying the most competitive returns. Not only are you getting a notably higher rate … you’re still protected by federal deposit insurance. That’s as close to a free lunch as you’re going to find.”

Moreover, he has advised cardholders with high imbalances on account to take care of these as soon as possible.

To sum up, we expect the Fed to hike the rates not only during the current year but also three more times in 2018. Also, the central bank promised to fund the rate up to nearly 3 percent. As of now, the interest rates across the US are held at a range of 0.75% to 1.00%.

Think we missed something? Let us know in the comments section below.

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