The Federal Reserve announced that it’s keeping interest rates steady following its Jan.25-26 meeting, leaving the federal funds rate at a range of 0 to 0.25 percent.But despite the inaction in rates for now, Fed watchers are expecting the central bank to hike rates a number of times in 2022, with a high probability that it does so at its next meeting in March.The Fed’s move was widely expected, and it comes as inflation runs hot in the U.S.economy, thanks to a strong bounceback, supply chain issues and trillions in fiscal stimulus .While Federal Reserve Chairman Jerome Powell said that the bank is maintaining its low interest rates for now, the Fed will continue with its accelerated taper of bond purchases, which was announced in December.
This move reduces liquidity in the financial system more quickly than previously indicated, and if the Fed sticks to that pace, it will eliminate its bond purchases in March.Many Fed watchers have been concerned that if the central bank keeps its foot on the gas too long, it could exacerbate – and maybe even entrench – already-high inflation .For now, however, the bond market doesn’t seem to be pricing in a huge incremental rise in inflation.After soaring in the first few months of 2021, U.S.10-year Treasury yields dipped, before settling in just above where they peaked in March of last year.As the Fed proceeds with its tapering but continues to sit tight on rates, here are the winners and losers from the latest decision.
While the federal funds rate doesn’t really impact mortgage rates, which depend largely on the 10-year Treasury yield, they’re often moving the same way for similar reasons.The Fed has been a huge buyer of mortgage-backed securities , helping to steady that market and keep mortgage rates low, but it’s scaling back those purchases more quickly in the near term.Still, the 10-year Treasury yield has zoomed higher in recent weeks, as the market prices in expectations of the Fed raising rates.”Mortgage rates have jumped since the beginning of the year, at one time up one-half percentage point since late December levels,” says Greg McBride, Bankrate’s chief financial analyst.”There will be spurts toward higher rates during the year as the Fed raises rates and starts letting some of their bond portfolio mature, but there will also be periods where rates pull back due to economic or geopolitical concerns.” Despite the move higher, the current environment is still attractive if you’re looking to get a mortgage or you’re able to refinance an existing mortgage .Demand for mortgages has surged since the start of the pandemic as low rates have made them more attractive.
But now may be the time to act before rates move even higher over the coming months and years.Those who are unable to take advantage of low rates – perhaps because they’re underwater on their house or maybe they’ve locked in a fixed-rate mortgage and today’s rates aren’t quite low enough that it makes sense to refinance – miss out here.In addition, millions of unemployed Americans are unable to gain a direct mortgage benefit from low rates, because they’re unable to show an income.
Here’s how to find the lowest mortgage rates today.The cost of a home equity line of credit (HELOC) remains low, since HELOCs adjust relatively quickly to changes in the federal funds rate.HELOCs are typically linked to the prime rate , the interest rate that banks charge their best customers.Since rates on HELOCs remain low, those with outstanding balances on their HELOC will continue to have low interest expenses.
A low rate is also beneficial for those looking to take out a HELOC, and it can be a good time to comparison-shop for the best rate .If you can’t take advantage of the low rates on your HELOC – for example, some HELOCs let you lock in a fixed rate on a portion of your borrowing – then they don’t benefit you, and you might otherwise be paying less.(Here are the pros and cons of a HELOC.
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And markets have been pricing that in, with the S&P 500 in a deep slump to start the year.”The cost of money is going up in 2022, so the returns won’t come as easy as they did the past 18 months or so,” says McBride.”Expect a bumpier ride, but most importantly, maintain your long-term perspective.Continued growth in the economy and corporate earnings are what will ultimately reward patient and disciplined investors.Don’t let short-term volatility distract from your long-term objectives.” Cryptocurrencies have also been feeling the brunt since November, when the Fed more clearly telegraphed its intentions to reduce liquidity in the financial system.
Bitcoin , Ethereum and other major cryptos are well off their 52-week highs and have shown a solid downtrend over the last few months, as they priced in reduced stimulus and the potential for higher interest rates.Debtors welcome low interest rates, because they’ll owe lower payments, and there’s no bigger borrower than the U.S federal government.With the national debt at nearly $30 trillion , low rates remain a spur to refinance outstanding debt, offering the opportunity to save potentially billions of dollars as the government rolls over its debt.Of course, the government has benefited for decades from a secular decline in interest rates.
While rates might rise cyclically during an economic boom, they’ve been moving steadily lower long term.For now, the interest rates on debt remain at attractive levels, with 10-year and 30-year Treasurys running well below inflation.But eventually the government will have to start refinancing its debt at higher interest rates.Low interest rates mean that banks will offer low returns on their savings and money market accounts.CD rates saw a substantial decline after the Fed lowered rates in early 2020, and they’ve never really recovered.
But change may be on the horizon.CD owners who locked in rates recently will retain those rates for the term of the CD.And those shopping for CDs may be able to still find a relatively attractive deal if they search across the nation’s best rates .
Savings accounts have felt the brunt of lower rates, as most banks quickly ratcheted rates lower following the Fed’s emergency cuts in March 2020.Still, there are a handful of banks that are offering substantially better rates than their peers, and with rates poised to rise in the near term, it can be worth starting to look for the highest rates again.”Where you have your money parked will be really important as interest rates rise, because many banks will be slow to pass along higher returns to savers,” says McBride.”You want to be where your money is wanted and they’re willing to pay more to have it.
Online savings accounts that are already paying a competitive yield will be those most likely to continue paying a competitive yield as interest rates rise.” Savers looking to maximize their earnings from interest should turn to these online banks, where rates are typically much better than those offered by traditional banks.Many variable-rate credit cards change the rate they charge customers based on the prime rate, which is closely related to the federal funds rate.The Fed’s decision means that interest on variable-rate cards is likely to remain flat, too, at least for now.If you have an outstanding balance on your cards, then a low rate is welcome news.
However, it’s important to keep the low rates in perspective because credit card rates are still among the costliest forms of financing for consumers and rates look like they’re poised to rise in the near term.Still, persistently low rates could be a welcome opportunity to find a new credit card with a lower rate .Low rates on credit cards are largely a non-issue if you’re not running a balance.Inflation has been running hot over much of the last year , and the Fed has been laying the groundwork for raising interest rates in the near term.
But rates still do remain low by historical standards, so it makes sense to think about how to take advantage of potentially higher rates, whether that means getting a mortgage before rates rise further or being more discriminating when it comes to shopping for rates on your savings accounts or CDs..
