How the Latest Fed Funds Rate Change Affects You

How the Latest Fed Funds Rate Change Affects You

The fed funds rate is how the nation's central bank, the Federal Reserve, influences the U.S. economy.  It directly raises or lowers interest rates on credit cards, personal loans, and variable-rate mortgages. It does this through the Federal Open Market Committee (FOMC) which meets eight times per year. 
 
The Fed kept the fed funds rate at 5.50% at its  on September 20, 2023. The Fed warned that it would raise rates again later this year if inflation doesn't return to the Fed's target of 2%. The Fed estimates that core inflation will be 3.7% by the end of 2023. This makes it more likely that the Fed will raise rates again at its November 1 or December 13 meetings.
 
At the latest FOMC meeting on September 20, 2023, the Fed kept the fed funds rate at 5.50%. The Fed's press release said that although the economy is strong, inflation remains elevated. The Fed prefers inflation to stay around 2%. It measures it using the core PCE index, which reported 4.2% inflation for July 2023. This index excludes volatile oil and food prices, which can vary significantly from month to month. July's inflation rate was lower than the 4.6% rate in March 2023.
 
When the economy is growing too fast, the Fed raises rates to curb spending and borrowing. 
 
How a Higher Fed Funds Rate Affects Housing
 
The rate increase will send variable-rate mortgages higher, which will discourage some buyers from purchasing a home right now. Sellers will also be reluctant to put their home on the market if they hold a mortgage with a lower interest rate. 
 
Keep in mind that fixed-income rates, such as those on 30-year and 15-year mortgages, are not directly affected by the fed funds rate. Instead, these rates usually follow the 10-year Treasury yield. These rates have been increasing since September 2021, according to the U.S. Treasury Department's latest report
 
 

 

 

 

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