With the Federal Reserve signaling Wednesday that it will begin raising its benchmark interest rate as soon as March — and probably a few additional times this year — consumers and businesses will eventually feel it.
The Fed’s thinking is that with America’s job market essentially back to normal and inflation surging well beyond the central bank’s annual 2% target, now is the time to raise its benchmark rate from near zero.
The Fed had slashed its key rate after the pandemic recession erupted two years ago. The idea was to support the economy by encouraging borrowing and spending. But now, by making loans gradually costlier, the Fed hopes to stem the surging price increases that have been squeezing consumers and businesses.
Here are some questions on what this could mean for consumers and businesses.
I’M CONSIDERING BUYING A HOUSE. WILL MORTGAGE RATES GO STEADILY HIGHER?
Probably, but it’s hard to say. Mortgage rates don’t usually rise in tandem with the Fed’s rate increases. Sometimes they even move in the opposite direction. Long-term mortgages tend to track the rate on the 10-year Treasury, which, in turn, is influenced by a variety of factors. These include investors’ expectations for future inflation and global demand for U.S. Treasurys.
When inflation is expected to stay high, investors tend to sell Treasurys because the yields on those bonds tend to provide little to no return once you account for inflation. As that happens, the selling pressure on the bonds tends to force Treasurys to pay higher rates. Yields then rise in response. The result can be higher mortgage rates. But not always.
DOES THAT MEAN HOME-LOAN RATES WON’T RISE MUCH ANYTIME SOON?
Not necessarily. Inflation is far exceeding the Fed’s 2 percent target. Fewer investors are buying Treasurys as a safe haven. And with numerous Fed rate hikes expected, the rate on the 10-year note could rise over time — and so, by extension, would mortgage rates.
It’s just hard to say when…..ReadMore…