The Federal Reserve just raised interest rates again, bumping up its short-term lending rate by a quarter-point on Wednesday, to 1.5%. It’s the third time the central bank has inched rates higher this year — and any time it does, it’s a closely watched and deeply analyzed move.So why do investors turn Fed-watching into a spectator sport?The Fed raises rates when it sees higher inflation due to a stronger economy. That usually correlates to lower unemployment and flusher pockets. When rates are rising, people have jobs and wages tend to go up. Consumers are out spending money, enjoying life and pushing up inflation.It’s good times, in other words — but investors can be a nervous lot, always looking to the future.Why rate increases make investors nervousInvestors closely watch the Fed because the nation’s central bankers determine interest rates, and those rates determine how cheaply companies and individuals can borrow. In other words, … [Read more...] about Don’t freak out over the Fed raising rates
Fed funds rate
WASHINGTON — With a notable upgrade to its economic outlook for 2018, the Federal Reserve agreed to raise its key interest rate Wednesday and maintained its forecast for three hikes next year despite sluggish inflation.As widely expected, the Fed’s policymaking committee lifted its benchmark short-term rate by a quarter percentage point to a range of 1.25% to 1.5%. It marked the central bank’s third such rate increase this year and a vote of confidence in an economy that has perked up in recent months. Still, it was just the fifth hike since the recovery from the Great Recession began in 2009. More: How the Fed interest rate hike could affect your wallet More: Will a Fed interest rate hike mean more interest in your savings account? More: How a Fed rate hike could impact your auto loan The move is expected to ripple across the economy, nudging up rates, most noticeably for credit cards, adjustable-rate mortgages and … [Read more...] about Fed raises rates, keeps forecast for 3 hikes in 2018
The Federal Reserve announced Wednesday that it is raising its benchmark federal funds rate target range by 0.25% as expected.So far during this rate hike cycle, however, this hasn't translated to more money for savings account customers. Will this time be different? MORE: Fed raises interest rates for the third time this year, keeps forecast for 3 hikes in 2018The short answer is "sort of." While savings account interest rates tend to increase in response to Federal Reserve monetary policy, the two aren't directly related.Some interest rates are directly tied to the federal funds rate. For example, credit card interest rates are based on the federal funds rate, and therefore Fed rate hikes are passed onto consumers.On the other hand, there is no direct correlation between the interest rates paid by savings accounts and the federal funds rate. Simply put, there's no rule that says that your bank has to pay you more interest simply because the Fed raises rates.Having said that, … [Read more...] about Will a Fed interest rate hike mean more interest in your savings account?
Monthly payments on credit cards, adjustable-rate mortgages and home equity lines are expected to increase after the Federal Reserve lifted its benchmark short-term interest rate this week for the third time in 2017.All of those revolving loans have variable rates that go up or down based on the Fed’s key rate, which is rising by a quarter percentage point. More: Fed raises rates, keeps forecast for 3 hikes in 2018 More: Will Fed rate hike mean more interest in your savings account? More: How a Fed rate hike could impact your auto loan While the impact of a single rate increase is limited, “The cumulative effect of the Fed’s interest rate hikes is mounting,” says Greg McBride, chief economist of Bankrate.com. “It’s putting a financial squeeze on household budgets at a time when income growth remains elusive.”The central bank has raised rates five times since late 2015.For consumers with 30-year mortgages and … [Read more...] about How the Fed interest rate hike could affect your wallet
WASHINGTON — With a significant upgrade to its economic outlook for 2018, the Federal Reserve agreed to raise its key interest rate Wednesday and maintained its forecast for three hikes next year despite sluggish inflation.As widely expected, the Fed’s policymaking committee lifted its benchmark short-term rate by a quarter percentage point to a range of 1.25% to 1.5%. It marked the central bank’s third such rate increase this year and a vote of confidence in an economy that has perked up in recent months, but just the fifth hike since the recovery from the Great Recession began in 2009.The move is expected to ripple across the economy, nudging up rates most noticeably for credit cards, adjustable-rate mortgages and home-equity lines of credit. The effect on fixed-rate mortgages is likely to be less pronounced.The Fed marginally pushed up its economic growth forecast to 2.5% this year but sharply raised it to 2.5% in 2018 from its 2.1% estimate in September in an … [Read more...] about Fed raises rates, upgrades economic outlook
WASHINGTON-- The nation's recovery from the Great Recession reached a historic milestone Wednesday as the Federal Reserve raised interest rates for the first time in nearly a decade, ending an extraordinary era of easy-money policy.The modest ¼ percentage point increase in the Fed's benchmark rate was widely expected and accompanied by signals that Fed policymakers intend to nudge up rates even more gradually than anticipated the next few years. That's a nod to inflation that remains unusually low and vestiges of the downturn that continue to thwart a more vibrant economy.The Fed's move puts the federal funds rate at about 0.4% after it has hovered near zero since the 2008 financial crisis as the Fed sought to spur more borrowing by consumers and businesses and juice often-sluggish growth."The economic recovery has clearly come a long way, though it is not yet complete," Fed Chair Janet Yellen said at a news conference after a two-day meeting. "We decided to move at this time … [Read more...] about Liftoff! Fed raises rates for first time since ’06
WASHINGTON - The Federal Reserve, confronted with the perils of a slumping economy and rising inflation, has decided for a second straight meeting to leave interest rates unchanged.The Fed announced Tuesday that it was keeping its target for the federal funds rate, the interest that banks charge each other, at 2 percent.The decision to leave rates alone had been widely expected by financial markets. The Fed is currently caught between the opposing forces of what many economists believe is a recession and rising inflation pressures, triggered by this year's huge runup in energy prices.The Fed decision means that commercial banks' prime lending rate, the benchmark for millions of consumer and business loans, will remain unchanged at 5 percent, its lowest level since late 2004.Federal Reserve Chairman Ben Bernanke and his colleagues are being forced to navigate treacherous waters, trying to keep the economy from plunging into a deep recession while worrying that by keeping interest rates … [Read more...] about Fed leaves funds rate unchanged at 2 percent
Wall Street stormed higher Tuesday as investors, optimistic following stronger-than-expected earnings from two big investment banks, were also galvanized by the Federal Reserve's decision to cut interest rates by three-quarters of a percentage point. The Dow Jones industrial average soared 420 points, its biggest one-day point gain in more than five years. Many investors were expecting the Fed to cut rates a full point, but appeared to overcome their early disappointment, especially since a 0.75 point cut is still substantial. The central bank's benchmark fed funds rate is now at 2.25 percent — its lowest level since December 2004, and less than half what it was last summer. The Fed began lowering rates exactly six months ago, after the credit markets seized up due to soaring defaults in subprime mortgages. In its statement accompanying the rate decision, the Fed said "recent information indicates that the outlook for economic activity has weakened further," but also that … [Read more...] about Stocks soar on Fed interest rate cut and 2 key earnings reports
In December 2015, the Federal Open Market Committee raised the federal funds target rate to a range of 0.25 percent to 0.50 percent, the first shift from the rock-bottom 0 percent to 0.25 percent level where it had remained since December 2008.The federal funds rate is the interest rate at which banks lend funds to each other from their deposits at the Federal Reserve, usually overnight, to meet reserve requirements.The Fed also raised a number of other rates related to funds moving between Federal Reserve banks and other banks. The Fed does not directly control consumer savings or credit rates, but the federal funds rate serves as a benchmark for many short-term rates, such as savings accounts, money market accounts and short-term bonds.The prime rate, which commercial banks charge their best customers, is typically about 3 percent above the federal funds rate. Other forms of business and consumer credit — such as small-business loans, adjustable-rate … [Read more...] about What is the federal funds rate?
WASHINGTON - The Federal Reserve approved a half-percentage point cut in its discount rate on loans to banks Friday, a dramatic move designed to stabilize financial markets roiled by a widening credit crisis. The action had an immediate positive impact on Wall Street after weeks of losses. The Dow Jones industrial average initially shot up more than 300 points right after the opening bell. By midmorning, stocks had given up over half of the inital surge with the Dow up about 60 points. The decision means that the discount rate, the interest rate that the Fed charges to make direct loans to banks, will be lowered to 5.75 percent, down from 6.25 percent. The Fed did not change its target for the more important federal funds rate, which has remained at 5.25 percent for more than a year. Friday's move was not expected to have an immediate impact on consumer borrowing. However, it has been infusing billions of dollars in money into the banking system over the past week to keep that … [Read more...] about Fed cuts rates by half a point