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Monday, March 18, 2024
March 18, 2024

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Interest rates likely to begin heading higher fairly soon

The Columbian
Published:

Are you carrying a big credit card balance? Or maybe you’re considering taking out a mortgage or other loan.

If so, it’s time to start worrying, at least a little bit.

With the U.S. economy gaining momentum, economists generally expect the Federal Reserve to start raising interest rates next year. Although a major boost seems unlikely, any upturn will increase borrowing costs for consumers.

“From a borrower’s perspective, the writing is on the wall,” said Greg McBride, chief financial analyst at North Palm Beach, Fla.-based interest rate tracker Bankrate.com.

The last time the Fed raised the federal funds rate was in 2006. Since then, the rate plummeted to a target range of zero to 0.25 percent, where it’s been wedged for the last six years. Similarly, the prime rate, used as a benchmark for a variety of consumer loans, has been stuck at 3.25 percent.

For now, the outlook is for the Fed to engineer a couple of quarter-point rate hikes in the second half of 2015, McBride said.

Those increases would most directly affect rates charged on variable-rate credit cards — almost all credit cards these days have variable, not fixed, rates — home equity loans, adjustable-rate mortgages, and student and auto loans.

Fixed-rate mortgages should head higher even earlier, McBride said.

For borrowers, the message is clear.

“Whether interest rates go up a little or a lot remains to be seen, but they will go up,” he said. “There’s no better time than the present to use the tailwind of low interest rates to pay down your debt.”

On the flip side, if borrowing rates go up, that’s generally good news for savers.

Still, any improvement in deposit rates likely will be muted.

“I think savers will end up trailing the rate of inflation for the foreseeable future,” McBride said.

“With inflation right now running at 1.7 percent annually, and the top-yielding online savings accounts paying 1 percent, the Fed would have to raise rates a few times, and you would still be trailing inflation.”

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