A Fed rate hike is an increase in the interest rate that the Federal Reserve charges member banks for borrowing money. The hike is the Fed’s first since 2006 and only the fourth time it has raised rates since 1995.
The central bank’s decision to lift rates could mean a few things for consumers. One is that adjustable-rate loans such as credit cards and home equity lines of credit will likely become more expensive. That’s because the rates on those products are often based on the prime rate which is influenced by the Fed’s benchmark rate.
Savers on the other hand may see a modest bump in the interest rates paid on their deposits. That’s because banks are likely to raise the rates they offer on certificates of deposit and other savings products.
The Fed’s rate hike could also have an indirect impact on mortgage rates. While the Fed doesn’t set mortgage rates its actions can influence them. That’s because mortgage rates are influenced by the yield on the 10-year Treasury note which rises when the Fed raises rates.
So while a Fed rate hike may not have a direct impact on mortgage rates it could lead to a rise in those rates down the road.
The Fed’s rate hike could also have implications for the stock market. That’s because higher interest rates often lead to a stronger dollar which can hurt the earnings of big multinational companies.
That’s because a stronger dollar makes U.S. exports more expensive and reduces the demand for those exports. That in turn can lead to a decline in corporate profits.
So while the Fed’s rate hike may be a positive for savers and borrowers it could be a negative for the stock market.
What is a fed rate hike?
A fed rate hike is when the Federal Reserve raises the interest rate that banks charge each other for overnight loans.