The Federal Reserve Board defeated office pools nationwide this week with the decision not to raise key interest rates. For the time being, the most favored borrowers will continue to enjoy rates in the 0.0 percent to 0.25 percent range, but Fed Chair Janet Yellen has not ruled out raising the rates next month. Pundits anticipate the increase will be incremental. Yellen's remarks may move officemates to focus wagers on which news outlet will report that interest rates have doubled … to 0.5 percent.
A rate change has always been newsworthy, but the next one will be especially interesting: In the nine years since the last adjustment, a whole new generation of consumers has entered the economy. Millennials have spent their working lives making lower payments on loans and credit cards and earning almost nothing on savings accounts. Perhaps they will take a note from the rest of us, particularly baby boomers, who have lived through interest rate fluctuations.
For example, if a homebuyer opted for an adjustable-rate mortgage, now may be the time to refinance to a fixed-rate mortgage. Depending on the ARM, an interest rate hike could increase monthly payments, and not everyone can absorb even a small change in monthly obligations.
Credit card interest rates will likely be affected as well, if not from the initial 0.25 percent increase, from additional increases down the road. (That goes for short-term loans, like home equity loans, too.) It may be the time to step up payments to clear any standing balances. Consumers should be careful to look at the credit and loan agreements, though: Some may safeguard against interest rate hikes. Anyone with a variety of accounts may want to look at tax considerations when deciding which to pay off first.