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How Fed hike will affect mortgages, car loans, credit cards

How Fed hike will affect mortgages, car loans, credit cards

WASHINGTON — Are mortgage rates going up? How about car loans? Credit cards?

How about those nearly invisible rates on bank CDs — any chance of getting a few dollars more?

With the Federal Reserve having raised its benchmark interest rate Wednesday and signaled the likelihood of additional rate hikes later this year, consumers and businesses will feel it — if not immediately, then over time.

The Fed’s thinking is that the economy is a lot stronger now than it was in the first few years after the Great Recession ended in 2009, when ultra-low rates were needed to sustain growth. With the job market in particular looking robust, the economy is seen as sturdy enough to handle modestly higher loan rates in the coming months and perhaps years.

“We are in a rising interest rate environment,” noted Nariman Behravesh, chief economist at IHS Markit.

Here are some question and answers on what this could mean for consumers, businesses, investors and the economy:

Q. I’m thinking about buying a house. Are mortgage rates going to march steadily higher?

A. Hard to say. Mortgage rates don’t usually rise in tandem with the Fed’s 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.  Read More

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5 lessons from Fed speeches this week

Lesson #1. The Fed went into last week’s meeting not knowing how the vote was going to come out.

Markets are upset that the Fed did not telegraph in advance of the September meeting that there would be no taper. Several Fed officials said the vote was “close.” This means “too close to call ahead of time” and “too close to telegraph.”

Key quote:

“That was a borderline decision,” James Bullard, president of the Federal Reserve Bank of St. Louis, said last Friday on Bloomberg Television’s “Bloomberg Surveillance.” “The committee came down on the side of, ‘Let’s wait.’

Lesson #2. The deciding factor? The economy is wobbling, not powering ahead.

So with one camp in the Fed’s policy committee urging a taper and the other wanting to hold off, what was the deciding factor? It looks like it was the data since July, which came in weaker than expected and those expectations were not strong to begin with.

Key quote:

“Is America losing its economic mojo? There is some evidence to the affirmative,” said Atlanta Fed President Dennis Lockhart.

Lesson #3. Don’t bet your mortgage on an October taper

A natural question is whether the Fed will move at its next meeting on Oct. 29-30. Fed officials never say never, but officials don’t seem to be leaning in favor of a move.

Key quotes:

“In the short time between now and the October meeting, I don’t think there will be an accumulation of enough evidence to dramatically change the picture” about where the economy now stands, Dennis Lockhart, the president of the Atlanta Fed Bank, said.

“It could be hard to do it (tapering) in October without losing face, but I don’t see why we couldn’t do it,” said Jeffrey Lacker, president of the Richmond Fed, according to Reuters.

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Stocks, bonds extend slide as China adds to market fears of Fed stimulus pullback

 A day after the Federal Reserve roiled Wall Street when it said it could reduce its aggressive economic stimulus program later this year, financial markets around the world plunged. A slowdown in Chinese manufacturing and reports of a squeeze in the world’s second-biggest economy heightened worries.

The global selloff began in Asia and quickly spread to Europe and then the U.S., where the Dow Jones industrial average fell 353 points, wiping out six weeks of gains.

But the damage wasn’t just in stocks. Bond prices fell, and the yield on the benchmark 10-year note rose to 2.42 percent, its highest level since August 2011, although still low by historical standards. Oil and gold also slid.

“People are worried about higher interest rates,” said Robert Pavlik, chief market strategist at Banyan Partners. “Higher rates have the ability to cut across all sectors of the economy.”

The question now is whether the markets’ moves on Thursday were an overreaction or a sign of volatility to come. What is becoming clearer is that traders and investors are looking for a new equilibrium after a period of ultra-low rates, due to the Fed’s bond-buying, which spawned one of the great bull markets of all time.  Read More

Federal Reserve Eyes End of Bond Buying, Spooking Markets

Federal Reserve Chairman Ben Bernanke said the central bank could start winding down its $85 billion-a-month bond-buying program later this year and end it altogether by mid-2014, setting up a high-stakes test to see if the economy and financial markets can begin to stand on their own.

Financial markets—which have been enlivened by the fuel of the Fed’s easy-money policies—didn’t take the news happily. The Dow Jones Industrial Average finished the day down 206.04, or 1.35%, at 15112.19. Yields on 10-year Treasury notes jumped 0.126 percentage point to 2.308%, the highest level since March 2012. The dollar strengthened.

Behind the Fed’s strategy for unwinding its bond-buying program were its optimistic new economic forecasts for next year, including a projection that the jobless rate, which was 7.6% in May, will fall to between 6.5% and 6.8% by the end of 2014.

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The Fed hasn’t yet made a formal decision to end the bond-buying program, and Mr. Bernanke in a press conference following the Fed’s two-day policy meeting emphasized that the central bank will be flexible as it assesses the economy’s health. The Fed’s bond-buying programs are meant to drive down borrowing costs, push up asset prices and encourage more investment, spending and hiring in the broader economy.

But Mr. Bernanke said the wind-down could begin “later this year” if growth picks up as the Fed projects, unemployment comes down, and inflation moves closer to the central bank’s 2% target. If those expectations bear out, the Fed could stop buying bonds altogether by the middle of next year, when officials project unemployment to be around 7%, he said.  Read More

Markets Eager for Something – Anything – New from Fed

Federal Reserve, FOMC, Ben Bernanke, Fed chief, monetary policy, beige books

So much anticipation for a Federal Reserve Board statement not likely to be markedly different from any so far released in 2013.

The Federal Open Markets Committee, which sets most Fed monetary policy, is meeting Tuesday and Wednesday and will release a statement on their most recent forecasts and potential policy shifts early tomorrow afternoon, followed by a press conference with Fed Chairman Ben Bernanke. (Most analysts agree the real news will likely come during Bernanke’s Q&A with reporters.)

This is pretty much the FOMC’s monthly routine.

As has also been their monthly routine for the past six months or so, Bernanke and his colleagues will undoubtedly acknowledge some recent economic stumbling blocks – namely a leveling off of manufacturing activity in the first half of 2013 and the stubbornly high 7.5% unemployment rate.

In the same statement, however, the FOMC is widely expected to reaffirm its commitment to tapering its easy money stimulus programs, possibly as soon as September, depending on the broad trajectory of economic data between now and then.

Three rounds of bond buying programs, or quantitative easing, since the recent financial crisis have expanded the Fed’s balance sheet to more than $3.1 trillion in assets from less than $1 trillion in mid-2008, a concern to those who wonder what the impact will be when the Fed begins to unwind those assets.

The only difference between tomorrow’s message and those of the past six months is that we’re now getting closer to an actual announcement by the Fed that it will start gradually scaling back its $85 billion a month in bond purchases. That proximity seems to heighten investor anxiety.

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