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The federal funds rate reflects the interest that financial institutions charge each other for overnight loans. Banks use it to set their rates on everything from savings accounts to adjustable-rate mortgages.
Norwalk Community College Professor Steven Glazer said those with savings accounts shouldn’t expect banks to pay them more for their deposits — for now.
“A lot of large banks have not raised rates on savings account at this point,” Glazer told the Daily Voice. “They like to increase the rates first on the loans.”
Those who have borrowed money would be affected if they carry a variable-rate loan, in which the interest payments can change based on market conditions. Glazer said holders of those loans probably won't see the impact for a couple of weeks.
Even though the rate increase was small — the Fed raised the rate by a quarter of a percent — those who have large loan balances in the tens or hundreds of thousands of dollars may see a noticeable increase in their payments. It all adds up, Glazer said.
While consumers may end up paying more to borrow money because of the change, the rate increase is a positive signal for the economy.
“The economy has not fully returned to where it was prior to the Great Recession, (but) it has definitely gained a lot of traction in the past couple of years,” Glazer said. “(The Fed) feels that this is a good time to do this.”
Glazer said The Fed had anticipated raising the rate at the end of summer. But the stock market took a tumble over concerns that China’s economy was slowing down and the Fed scrapped that plan.
Not only was the rate increase expected this time, it was also what the economy needed. If the Fed hadn't raised the rate, it would have sent a “negative signal,” Glazer said.
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