Record Low Interest Rates to Increase With Fed Decision

Real estate is selling fast and prices are still competitive.  Builders and homeowners alike have taken advantage of the great rates seen after the 2008 economic crunch. These record low interest rates might soon be a thing of the past.  The Federal Reserve has decided it’s now time to rethink the rates because the economy is stronger, and more people are in a position to borrow money.  The Fed already bumped the key interest rate up by 0.25% in December 2015.

Fortunately the Fed plans to raise the rates at a slow, steady pace.  In fact, this is the first rate hike in almost ten years. Even with the slow increase, everyone will be affected. Anyone who has a credit card, savings account, invest in a 401(k), invest in the markets, or wants to make a big purchase with a loan needs to know how the rate increases will affect them.

Just because there has been a raise in the rate does not mean you should rush out and make a big purchase tomorrow.  Owning a new home is a big deal and you should research to find the right one that suits you.  Even if the rates are higher in a year, they still will be lower than historical averages.
“Rates are pretty low and they’re not going to change much in the short term,” says Dean Croushore, a University of Richmond professor and former Fed economist. Do start your research now and pay attention to the Fed’s actions.  If they do start to increase rates out of your comfort zone, it might be time to make that leap into home ownership.

Years ago many remember the advantages of putting their hard-earned cash into a savings account.  It would yield them a little bit of extra cash on top of what they had saved – imagine that!  In the past decade there has been almost zero interest earned.  With the Fed’s rate change, we will also see a higher interest income on your deposits. So a benefit to the rate increase means an increase on the money you put away in your savings account.

Not so smooth sailing for the stock markets. This Fed hike could cause major ups and downs in the stock and bond markets.  This trigger coupled with failing oil prices, China’s continued economic slowdown and decisions made by central banks around the world should be of great concern. According to MSCI Emerging Market Index, the stock market performance was down approximately 20% at the end of 2015.

With the new year comes good news for the U.S. dollar. The increase in the interest rate is predicted to make the dollar stronger. While the dollar is gaining many other global currencies are lowering.  This will have a negative impact on the global economy. U.S. companies will lose money on products sold in other countries.  Investors are already putting all of their money in U.S. investments rather than putting some money into global investments. The U.S. manufacturing sector has already shrunk due to the weak global economy.

All in all it seems to be more good news than bad for those wanting to invest or make big purchases such as a new home. “We’ve come a long way from the depths of the recession, but we’re still not quite back to where we’d like to be,” says Croushore, the former Fed economist.

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