Federal Rate Hike
The US housing market and banking sector crashed between 2007 and 2009, which is considered to be one of the worst in US history. To keep the economy from collapsing, the Federal Reserve cut the costs of borrowing money to very low levels. After a seven-year period, the Federal Open Market Committee (FOMC) finally decided to raise the target range funds rate by 0.25%.
The committee intends to continue this policy until normalization of the federal funds’ rate level is well under way. They project that the funds rate will increase to nearly 1.5% in late 2016 and 2.5% in late 2017. By the end of 2018, the median rate will rise up to 3.25%, which is close to its longer-run normal levels.
The FOMC raised the federal funds rate because the US economy has slowly been growing during the past few years. According to Janet Yellen, 2.3 million jobs have since been added to the economy. She also stated that the US real gross domestic product is estimated to have increased in average pace of more than 2% for the first three quarters last year.
What Does This Mean?
The federal rate hike marks the end of the long-running reverberations of the financial crash. Adjusting this rate can affect investment management for Ashburn, VA investors as well as other sectors of the economy. Some of the areas affected are:
- Short- and long-term rates paid by firms and households – This includes mortgages, corporate bonds, and asset prices.
- Personal finances – The federal rate hike will cause an upward movement in short-term interest rates, which is a good thing for money savers.
- Tamed inflation – If the rate hike continues to rise, inflation should remain under control. A sample scenario could be lower prices of imported consumer products.
- Financial loans – Financial institutions can offer loans more freely as the interest rates increase.
- Interest incomes for retirees – Senior citizens can live on their retirement savings easily since interest on their savings account will rise as well.
If you need help with asset and wealth management in Washington, DC or Northern Virginia, talk to the experienced financial advisors at AOG Wealth Management. We can create investment strategies specifically designed for your goals and needs. We maintain high standards of integrity and professionalism, ensuring due diligence on all prospective investments.
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