The timing of when the Federal Reserve will raise interest rates again will impact consumers with outstanding credit card and student loans. May's weak employment report means the odds that the Fed will raise rates at this month's meeting are extremely low.
"The disappointing May jobs report takes the idea of a June rate hike off the table," said Greg McBride, chief financial analyst for Bankrate, the North Palm Beach, Fla. based financial content company.
A lackluster economy will not likely encourage rate hikes soon although the central bankers have hinted at future increases later this year.
The postponement in raising rates gives consumers another opportunity to take advantage of paying down their current debt with zero or low interest rate balance transfer offers, purchase homes with mortgage rates under 4% or refinance their current adjustable rate mortgage.
When Increases Will Occur
The likelihood that the Fed could raise rates at either the July or December meetings depends on how much the economy improves, since Fed Chair Janet Yellen "very data driven," said Robert Johnson, president of The American College of Financial Services in Bryn Mawr, Pa.
"I believe November is off the table as it is a week before the U.S. presidential election," he said. "I doubt any action would be taken in September in the run up to the election.
The Fed considers a three-prong test for increasing interest rates: examining indicators of a rebound in the economy, additional strengthening in employment and inflation occurring near 2%, Johnson said.
The Fed lacks compelling economic reasons to raise interest rates currently, said David Twibell, president of Englewood, Colo.-based Custom Portfolio Group.
"The economy continues to plod along at the same anemic pace that has characterized the entire recovery," he said. "The real reason to raise rates is to counteract the massive imbalances created over the past eight years of 0% rates," he said.
Credit Card Rates
The interest rates on credit cards and home equity loans are pegged to the prime rate and follow any moves made by the Fed, said McBride. Consumers seeking to lower their monthly credit card payments by transferring the balances to a lower interest rate should not wait.
"The 0% offers will get less generous over time and there will be fewer of them," he said. "Grabbing them now locks in a window of time get the debt paid off without the headwinds of interest charges. Giving yourself that window of opportunity to get your debt paid off is pretty attractive."
Average credit card rates are substantial at 13.40% for a fixed rate cards and a 0.25% rate increase would boost payments by $0.25 per every $100.
"The impact is not very noticeable at the individual consumer level, but does marginally increase their interest costs," said Jerry Braakman, chief investment officer of First American Trust, a Santa Ana, Calif.-based financial planning firm with $1.1 billion assets under management.
Consumers who want to utilize low interest rates to refinance larger purchases such as a major home repair or medical bill should lock in rates now, said Jon Ulin, a managing principal of Ulin & Co. Wealth Management in Boca Raton, Fla.
"Don't procrastinate," he said. "While money can't buy you love or happiness, keeping your debt servicing payments as low as possible may lower your household stress and increase your cash flow over time."