Banks raise interest rates on borrowers after Fed hike

That’s a slower pace than the last time the Fed embarked on a rate-raising cycle, in a period between June 2004 and June 2006, when the Fed’s benchmark rate rose from 1 percent to 5.25 percent to slow a hot economy fueled by home-price growth, which proved unsustainable.

The Federal Reserve has raised interest rates in the United States for the first time in nearly a decade. That, in turn, affects the interest rates they give out to customers.

Traders then pushed expectations for a first rate hike well into 2016, forcing the Fed in October to tip its hand that a rate hike could take place in December. “Credit card rates… might move up slightly”. “But the significance is in the potential cumulative impact of whatever interest rate hikes are put into effect over the next 18 to 24 months”. They join other banks that have announced similar moves, including Wells Fargo, JPMorgan Chase and U.S. Bancorp.

“Definitely a communications coup”, said Scott Anderson, chief economist for Bank of the West in San Francisco.

Likely after a few rate hikes are out of the way next year, the Fed will have to decide how to drain its portfolio of Treasury and mortgage bonds, either by allowing them to run off naturally or by selling outright, a less likely option.

In the latter part of 2008, the Fed cut its target for the benchmark interest rate to zero, in an attempt to arrest the economic downturn following the implosion of the country’s subprime housing markets that toppled giants on Wall Street and shook the faith around the world in the financial system of the U.S.

“The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate”, the Fed said. If rates stayed at near zero, the Fed might not have the tools to combat a recession.

But wage growth has been sluggish, although it has shown signs of picking up in recent months.

On our air, Bill Gross said the Fed’s statement was not “one and done” but it could be interpreted as “two and wait”.

“We won’t automatically change deposit rates because they aren’t tied directly to the prime [rate]”. The question is: will the dollar keep gaining against other currencies once rates go higher? It will be governed by economic indicators like unemployment, and by inflation.

UBS expect the 10-year Treasury yield to increase 30bp in 2016 and 30bp in 2017. The Dow surged up 224.18 points or 1.3 percent to 17,749.09, the Nasdaq soared 75.77 points or 1.5 percent to 5,071.13 and the S&P 500 jumped 29.66 points or 1.5 percent to 2,073.07.

“Interest rates going up may help people with a little bit more urgency to make a decision sooner rather than later”, said Mike McGivney, with Allen Edwin Homes.

Will dollar strengthen even more?