Fed Surprises and How They Affect Your Finances

The U.S. dollar rose sharply higher after the U.S. Federal Reserve announced its first interest-rate increase of 2016 and signaled that it expected to increase rates 3 more times in 2017.

Stocks traded sharply lower, while yields soared.  The 2-year Treasury yield, which was the most sensitive to the Fed, shot to a seven-year high after the announcement.

This would help savers and hurt people with credit card debts and adjustable mortgages.   Rates on credit cards could inch higher after a rise in the federal funds rate, and so could the rates on home equity lines of credit, adjustable-rate mortgages, and personal loans.

In order to save money and not to get into a financial turmoil, folks with a lot of debt can transfer balances to a credit card with a lower rate.  Some credit cards are offering introductory rates of zero percent for from 12 months to for as long as 21 months.  However, most of these offers come with balance transfer fees from 2% to 5%.  The trick is having good enough credit to qualify.  Even with 2% to 5% fees, it’s enough savings to offset the high credit card interest charges.

For potential home buyers, the effects of a rate hike are harder to gauge. We’ll probably get a clearer picture when the next rate hike will be in 2017 and the subsequent rate hikes come true in 2017 as well.

It’s unlikely to see a rate increase is in your savings account after today’s rate hike.  This is just the reality that is hard to swallow.  Each time after a rate hike, your credit card interest rate goes up immediately, but not your savings account interest rate.  However, after each rate cut, your savings account interest rate goes down right away, but not your credit card interest rate.  Isn’t that the most irritating thing in the world?  Banks are not your friends.  Banks are out there to make money.  They don’t have the obligation, and nor do they have the compassion to take care of you.  Of course, banks are much quicker to raise rates on borrowers, which temporarily widens their profit margins.

Fed definitely sounded the alarm today.  With more interest rate hikes anticipated in 2017, and possibly in 2018, it’s time to review our finances.

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