What Experts Expect from a Fed Rate Hike in Early '15
NEW YORK (TheStreet) -- Did Federal Reserve Bank of St. Louis President James Bullard let the cat out of the bag and give a "trigger date" for the fed to finally hike interest rates?
Well, yes he did -- even according to Bullard, who doesn't seem to be beating around the bush.
In an interview with the Fox Business Network last week, Bullard "predicted" interest rates, specifically the Federal Funds rate used by banks and lenders to set their interest rates, would rise in the first quarter of 2015.
Bullard, citing sustained lower unemployment and bottom barrel inflation, said the Fed is ready to lift rates for the first time in eight years."I've left [my prediction] at the end of the first quarter of next year," he told Fox. "The Federal Reserve Open Market Committee is closer to its goal than many people appreciate. We're really pretty close to normal. Here's how some of the best minds in the investment business see a higher rate hike affecting Main Street financial consumers: John Walsh, president of Total Mortgage Services: With quantitative easing winding down and inflation seemingly on the rise, the Fed seems inclined to raise rates in the coming year, although there is no clear consensus among Fed members as to the timing of the hike. Also see: Why Bank Customers Keep Suffering: Low GDP Means Fed Stays Course Also see: Here's Why the Fed Isn't Hiking Rates Anytime Soon
- Consumers with large variable debt will be hurt. Their payments will increase and they will be paying more toward interest. This will cause variable mortgage payments to increase and will increase defaults and foreclosures.
- Savers will benefit. Savers have been hurt over the past six years with record-low rates while subsidizing the debtors. The Fed speaks about these low rates as if there is only a net benefit, but there are two sides to the issue. The post-recession era has been a wealth transfer from savers to debtors, and now higher rates will begin to favor savers.
- Credit card rates will increase, as credit cards are linked to the prime rate. As rates increase, so will credit cards interest rates. This will hurt consumers who have a lot of debt and whose interest payments will surge.
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