The Federal Reserve finally pulled the trigger on raising a key short-term rate that will inevitably lead to increases in the rates for credit cards, car loans and home equities. This marked the first time in nine years that the Fed has raised rates and marks the end to near-zero lending rates to banks.
What does this mean? Consumers will pay a little more on their loans and savers will earn a little bit more from the money that they have in the bank.
The Fed is hoping to raise rates two more times in 2016, but said that future moves are data dependent, in other words if things are moving in the right direction with the economy. Raising rates in this market tells the world that things are getting better for our economy.
The Fed will have some things to worry about as they consider their next move. First, the dollar becomes stronger when you raise rates, making our exports more expensive and hurting manufacturing here in the U.S.
Second, oil prices have continued to slide, which is good for consumers but bad for U.S. oil companies, which could continue to lay off workers here at home.
Third, the stock market is near all-time highs that were fueled by longstanding low interest rates, which could lead to a selloff.
All in all the Fed, will have to keep a close eye on the market, making sure that we are on solid ground before they do this again. This may take their estimates of two more rate increases from 2016 to 2017.