No surprise, the Federal Reserve raised interest rates for the first time in almost a decade because of the improving economy. Wall Street liked Wednesday’s announcement: the Dow went up 224 points and Nasdaq, 75 points. This may not mean much to you if you’re not financially inclined, but the Fed’s rate hike has trickle down effects that could impact your wallet.
“This action marks the end of an extraordinary seven-year period during which the federal funds rate was held near zero to support the recovery of the economy from the worst financial crisis and recession since the Great Depression,” Federal Reserve Chairwoman Janet Yellen said during a press conference.
Local economists describe the .25 percent increase “pretty small, pretty gradual.” The increase is to fend off inflation, which the government wants to keep about two percent.
“I think some people see it almost as making an offering to the gods to prevent the volcano from erupting – the volcano being inflation of course,” Santa Clara University economics professor Alex Field said.
Field says the rate increase is good news for your savings account.
“People may be getting a little bit more with their retirement savings,” Field said.
The downside? It will cost you a little bit more to borrow money for a car or a home.
A new survey from Zillow finds 70 percent of Americans still plan to buy even if rates rise to 4.5 percent, which is about where economists expect interest rates will be by the middle of next year. And about half of those home buyers would consider looking for a smaller house or in a less-expensive neighborhood.
Credit card interest rates will likely increase as well, Creditcards.com says higher APRs could cost people hundreds, even thousands more a year to carry the same balance. The website recommends shopping for a better rate or transferring balances.
“People will still come and eat, but they won’t eat as frequent,” Peter Zafiris, owner of San Jose-based Bill’s Café, said.
Zafiris’ family opened another location in Palo Alto three weeks ago. They are still paying off the loans used to build the new restaurant, and were not excited to hear
“It puts you on edge a little bit not knowing which direction we’re heading,” Zafiris said.
Some economists say the hike is a sign of more to come.
“I’m concerned about possibly upsetting the house of cards and pushing us back into recession,” Field said.
Field expects the Fed will raise the rate at least a couple more times, so it could be as much as one or two percentage points higher after a couple of years.