- The Fed left rates the same.
- Interest rates should remain steady — for now.
- Look for possible opportunities in real estate and stocks.
The Federal Reserve left the federal funds rate unchanged.
In his quarterly statement on March 20, Fed Chairman Jerome Powell left the fed funds rate in the range of 2.25 percent to 2.50 percent. However, the Fed backed off of its intention for two rate increases in 2019 and stated they likely would not raise rates this year. Hence, despite the lack of action, this report has three important implications for average Americans.
How Steady Rates Affect Consumers
First, consumers who hold credit card balances or other variable-rate debts should not face any interest rate hikes for now. However, with the Fed likely indicating an intention to hike rates as soon as next year, consumers should not get comfortable. Lenders usually base the interest rates they charge consumers on the Fed. When the Fed finally increases the rate, many consumers will have to pay more in interest. The non-action by the Fed gives consumers a chance to pay off as much debt as possible before rates rise.
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Second, this means better news for new homebuyers. The housing market has slowed, leading to falling home prices in many markets. As a result, consumers in these lower-priced markets can buy the same home at a lower payment. It also makes larger homes more affordable than just a few months ago. The federal funds rate does not directly affect mortgage rates. However, the indirect effects of Fed rate hikes still could increase mortgage rates.
Third, the most significant effect could fall on stockholders. The lower number of projected increases helps the market, and the market rose following the announcement. Traders tend to earn higher returns in low-interest rate environments. Interestingly, the last thing that stock traders want to see from the Fed is optimism. Positive sentiments indicate an improving economy. This often means more interest rate increases that could hurt stocks.
Implications of Steady Interest Rates for Americans
The Fed’s non-action on interest rates still holds implications for the average American. The fed funds rate remains steady, and the Fed does not intend to initiate rate hikes this year. This gives consumers time to pay off more debt while allowing them to buy more real estate at a lower payment. It also increases the likelihood that stocks will rise for now. Consumers should take advantage of these opportunities before rates resume their move higher.
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