Despite inflation running below the target, the Federal Reserve announced another rate hike by a quarter point on Wednesday. This second rate hike this year came after the previous rate increase in March. The new benchmark’s range will be 1 percent to 1.25 percent for a rate that is currently at 0.91 percent.
In addition, the Federal Reserve provided more detail on how it will unwind its $4.5 trillion balance sheet the contains debts such as Treasuries, mortgage-backed securities and government agency debt. This is good for America in the long haul as less debts will be more manageable and sustainable. The Fed also thinks that inflation will be less than its 2 percent target throughout 2017.
Savers will enjoy a modest increase in their checking and saving accounts. On the other hand, the interest rate hike negatively affects debtors with adjustable-rate and revolving debt like credit cards and home equity loans. The prime rate that banks use as a baseline for interest rates usually rises immediately after the Fed makes a move. Effective, new loans will be more expensive to consumers.