Federal Reserve Increases Rates Again

More moves from the Federal Reserve as they expect to hike yet another record high interest rate this coming December. These actions are held to accommodate for the growing threat of an economic inflation and adjust towards reducing its $4.5 trillion balance sheet.

The Federal Reserve raised the benchmark fed funds rate twice this year. It’s expected to raise one more time in 2017, with the median members of the Fed’s Open Market Committee projecting a rate of nearly 2% by the end of the year. We should expect the longer run interest median rate to be well-around 2.8 percent by 2019. In an attempt for the Fed to keep an eye out for stronger inflation, the committee has abruptly stated that “it was still below the longer run objective.”

The Feds next meeting is scheduled for October 31, and November 1. The feds do earn my appraisal in how they prepared us for the whole balance sheet rundown. Now, it’s necessary to point out that reducing the balance sheet is going to have a slight negative and further dampen the economic growth, affecting stocks and what not, however it could only be a meager effect at this point on going towards 2019. Now, in an immediate response towards this situation, it’s advised that you read on to further better your knowledge on how to protect your assets.

In-Depth Perspective:

In a sense, we have pursued a next to zero rate for nearly 10 years during the financial crisis (housing bubble, etc.) and we have held them at extremely low levels to stimulate a “sluggish economy,” which in this case, high-levels of inflation was bound to happen and it could possibly hit us much harder.

These transitions are in direct correlation to our economy, however, it seems that the Fed “just didn’t get the global headroom” to be able to raise rates until now. Moving rates expectedly within each quarter, this could either choke off the progress of the poorest Americans or delay the risk of inflating asset bubbles in the market leading to an even more unmanageable inflation rate.

If corporate taxes were slashed along with regulations and boosting spending on infrastructure were to happen, then this would likely boost economic growth enough to force the Fed to hike rates more quickly to keep up. With an increased Fed Rate, the intention here is to attract global investments and push the value of the American dollar while weighing on U.S. exports.

5 Necessary Steps:

Since this directly increases rates FOR savings accounts, CDs and money market accounts, subjecting you to higher fees for loans, this is exactly the perfect time to heed these preventative measures.

1. Pay off any outstanding credit card debt that you have.
   1. You should expect your credit card interest rate to go up eight to 17 points comparative to the prime rate since the interest rate is expected to go up over the next two years.
2. Start Saving More
   1. You’ll be earning more of that emergency fund. Be sure that you don’t lock into any three-five year CD as the Federal Reserve expects to raise rates next year as well. This will cause you to miss out on the higher returns.
3. In need of furniture, appliances, or a new car? Don’t Wait. 
   1. Interest rates on those loans will be going up and it will only get heavier over the next 2-3 years. If you need to refinance or even buy a new home, Interest rates on adjustable-rate mortgages will receive it’s fair share of boost as well. Recommendation: Go after fixed rate mortgages if you’re looking for a new home.
4. Contact your financial adviser and have him/her reduce the amount of bond funds you have.
   1. Diversity with your portfolio is always a must. They are reliable in support against economic crisis, however, it may not be the best time to add a plethora of bond funds. Recommendations: Stocks will be a better investment.
5. Be fully aware of the Federal Open Market Committee. 
   1. Since rates are expected to further rise, it should be common sense to keep an eye on any announcement made from the FOMC. Note that they meet 8 times a year.

Helpful Additional Resources:

• Here’s your go to for listings on the Best National Certificate of Deposit Accounts of 2017.
• Here’s your go to for listings on the Best Bank Rates, Interest Rates for Savings, Money Market Accounts, & High Yield Savings of 2017.

Credit Cards & Fed Rates:

Unemployment rate is at an all-time low while stocks, bonds and housing prices are at a all-time high on top of a 10-15 trillion dollars in debt; inflation is bound to happen and the purpose of a 1% High-Yield Savings account is emergency funds. With a increase in the Fed Rate, essentially, you would notice big lenders doing the same with their interest rates.

It’s recommended that you pay off your balance in full rather than raking up excessive interest rates. If you do have an existing form of credit card debt then there’s a big chance that the interest rate on the card is variable and changes will be based on the prime rate. The biggest advice I can give is to not make any purchases that you knowingly cannot afford to pay in full.

Conclusion:

Analyzing the situation with the utmost precaution possible, the federal funds rate is expected to increase yet again in December. We’ve already experienced two hikes and from the stance on our economy, there’s bound to be more increases in our rate to compensate for expected inflation. The Federal Reserve expects to raise its benchmark interest rate to 2.8% in 2018 after a decades period of no interest.