The Federal Reserve raised its key interest rate by 0.25% Wednesday. It was the first rate hike in nearly a decade.
Millions of Americans will be affected as U.S. rates start rising. If you want to buy a home or car, now’s the time to pay attention.
The Federal Reserve slashed interest rates to zero in December 2008 to stimulate the economy and boost the housing market during the depths of the Great Recession.
The central bank now believes the U.S. economy is strong now and no longer needs crutches.
Still, it won’t be a game changer overnight. Rates are expected to go up at a slow, gradual pace.
Here’s what you need to know about how the Fed’s action will affect you.
Home buyers: don’t rush, rates are still low
If you’re in the market for a home, you don’t need to rush and get it done tomorrow. But it’s a good time to pay attention and start preparing to take the big decisions.
Interest rates are still low but are slowly expected to start climbing next year.
The Fed determines the target rate for very short-term debt. But it also influences interest rates on credit cards, car loans and even long-term debt like mortgages.
None of the impact will happen overnight, experts say.
“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.
The average interest rate on a typical 30-year fixed rate mortgage is 3.9% right now and is expected to gradually increase.
Ten years ago mortgage rates were near 6.3% and 20 years ago 7.2%, according to the St. Louis Fed. So yes, rates will likely be higher in a year but still low when compared to historical averages.