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Five Things to Know About the Latest Federal Reserve Rate Hike

The hows and whys of the Federal Reserve's decision to hike up the prime rate — again.
U.S. Federal Reserve Board chair Yellen testifies before a Congressional Joint Economic hearing on Capitol Hill in Washington
U.S. Federal Reserve Board chair Janet Yellen testifies before a Congressional Joint Economic hearing on Capitol Hill in Washington, DC, U.S. November 17, 2016. REUTERS/Gary Cameron

The Federal Reserve raised rates Wednesday afternoon at the conclusion of its two-day meeting, signifying a stamp of approval on America’s economic recovery from the nation’s highest fiscal policymakers.

The Federal Open Market Committee agreed to raise its benchmark borrowing rate by one-quarter of a percentage point, to a range of between 1.0 and 1.25 percent. This marks the third increase this fiscal year, with previous hikes in December 2016 and again in March of this year.

So how will it impact you?

It’s Still Ok to Buy a House

Mortgage rates likely won’t go up, since long-term mortgages aren’t tied directly to the federal interest rate. And rates are already pretty low at 3.9 percent for a 30-year fixed.

What About My Student Loan?

Federal lending rates are locked in at the time the loan is taken out, so unless you are looking to borrow this year, you shouldn’t see a change in your payments. The bigger issue is the soaring total for the nation as a whole: $1.4 trillion in student borrowing.

What’s President Trump’s Role in All This?

The Fed is independent — despite then-candidate Donald Trump’s protestations during the presidential election campaign that Fed Chair Janet Yellen was “very political” and “should be ashamed of herself” — but with 12 positions currently open on the committee, there is a chance the balance of power may shift among the policymakers. Trump can personally nominate five of those open spots, and Yellen herself could leave when her first term ends in February 2018.

Why Now?

After the financial crisis of 2008, the Fed kept rates at zero for a full seven years. This allowed the economy to rebuild slowly. The latest jobs report from the Bureau of Labor Statistics showed that this goal has been met, and that unemployment is at its lowest level in 16 years (4.3 percent). So, conditions are right for the Fed to continue to — cautiously — nudge up rates in order to head off any rising inflation.

What’s Next?

Economists are in agreement that there will be at least one more rate hike this year, but are split on when that increase will come. For now, the money is mainly on December.