Fed rate hike positive for banks; little impact on construction, consumers
The long-anticipated Federal Reserve Board interest rate hike Wednesday of 25 basis points to a target range of 0.5% to 0.75% signaled confidence in the U.S. economy and early signs of higher inflation and potentially more rate hikes next year, experts said.
The hike, which was the first in a year and the second in 10 years, came “In view of realized and expected labor market conditions and inflation,” according to a statement from the Federal Open Market Committee.
The FOMC also released monetary policy projections through 2019, and noted the Fed could increase rates three times in 2017 to 1.4% by year-end. That’s one additional hike than was predicted at the September Fed meeting this year.
Fed Chair Janet Yellen said at a news conference after the Fed released its statement that she and her colleagues recognize the economy’s progress toward maximizing employment and stabilizing prices, The Washington Post wrote.
While yesterday’s rate hike was positive for banks, it meant little for consumers, Jessamyn Norton, chief investment officer at Spinnaker Trust in Portland, told Mainebiz in an email.
“This is very positive for banks and deposit-taking institutions simply because the deposits on the books will start to earn more interest,” she wrote, adding that long-bond rates rose on public investing after the election. That means the spread between lending and deposit rates is widening, which is good for banks.
However, since this is the second rate hike in the last year and was expected, Norton said mortgage rates were already on the rise, and consumers with floating debt will start to pay more.
Dodge Data & Analytics CEO Robert Murray had predicted at the company’s annual conference in October that a rate increase would lead to an economic slowdown by 2019, according to the newsletter Construction Dive. The publication also cited industry observers who said the rate hike won’t have an immediate impact on construction.
Spinnaker’s Norton said she also expected political intrigue surrounding the Fed meeting as President-elect Donald Trump accused Yellen of using monetary policy to benefit the Democrats during the election cycle, and said he’d replace her if he were elected.
What “will most likely happen is Yellen will be replaced when her term runs out in January 2018,” Norton said, adding that Yellen has defended the central bank’s independence.
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