In December, the Federal Open Market Committee raised its benchmark Federal Funds Rate for the first time in almost a decade. This is the rate at which banks lend money to each other overnight.
What does this mean for consumers? The Fed Funds Rate increase is not directly tied to long-term rates on consumer products. So, consumers should not expect home loan rates to rise as a direct result of the Fed’s decision.
First, short-term interest rate loans will increase on credit cards, home equity lines of credit, auto and business loans. Second, improving economic factors may influence home loan rates. The Fed’s rate increase was based on signs of a strengthening economy. If the economy continues to improve, home loan rates could move higher.