(TNS)—Consumers tend to pay far more attention to the swings in their March Madness brackets than the latest moves by the Federal Reserve. The reality is the Fed’s action will have a more lasting impact on your wallet.
The Fed moved to raise rates by 25 basis points, as expected. The Fed’s benchmark interest rate increases to 1.5 percent to 1.75 percent.
“Job gains have been strong in recent months, and the unemployment rate has stayed low,” the Fed said in its statement. “Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings.”
Going forward, consumers will continue to see an uptick in the cost of borrowing on everything from credit cards to car loans to mortgages.
This is the first rate hike of 2018 but it’s not the last, according to economists. Another two or three rate hikes are anticipated for this year, according to Robert Dye, chief economist for Comerica Bank.
“Higher interest rates are negatives for most households,” Dye says.
The U.S. economy has much going for it on the upside—strong job growth, rising home values, some wage growth and higher consumer confidence, and a federal tax cut that is putting more money in many wallets.
“I think the positives will outweigh the negatives this year and we will see a strong year for non-auto consumer spending,” Dye says.
Here are some things to pay attention to now in a rising-rate world:
- Budgets, unlike college basketball brackets, aren’t likely to be busted.
The theory is that the Fed has room to raise rates because the job market is so strong. As wages rise, consumers may not be under so much pressure to borrow or they’d be able to afford slightly higher rates.
Rates are expected to climb gradually, so consumers still have time to refinance or borrow earlier in the year to avoid higher rates later on down the road.
Mark Zandi, chief economist for Moody’s Analytics, says his expectation is that mortgage rates and car loan rates will be up by at least a half a percentage point a year from now. For savers, new CD rates are expected to be about a quarter percentage point higher a year from now.
“The economy is set to boom,” Zandi wrote in a report this week. “Growth is already strong—well above the economy’s potential—and will soon accelerate. A massive dose of fiscal stimulus measures, including both deficit-financed tax cuts and federal government spending increases, has just begun to hit the…