The Fed Raised Rates. Don't Expect the Same for Your Bank Deposits

The Fed Raised Rates. Don't Expect the Same for Your Bank Deposits

Mortgage rates don't automatically move with a rate hike, but they most often do. They are not there yet.

The projected policy path for the federal funds rate was in line with December's, with the Fed's dot plot showing three rate hikes this year.

Investors cheered the decision.

By a 9 to 1 vote, Fed officials raised the federal funds rate 0.25 percentage points to a range of 0.75 to 1 percent. The median five-year rate available in the market is 5.87 per cent. One-year rates are still available below 5 per cent.

Some economists think that is indeed the case - and that just as in the early 2000s the Fed is doing too little too late. The interest rates banks offer for certificates of deposit (CDs) are also usually set in relation to the fed funds rate. That suggests their opinion of how much Trump can boost the economy has not changed since the President took office.

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Nakosteen said consumers might see rates for borrowing tools like home mortgages and vehicle loans creep upward. Now, the jobs picture - while not completely ideal - is much better.

But turmoil in the global economy in 2016 meant the Fed held back on further increases, announcing a second hike only in December 2016. According to Bloomberg, adjusted for PCE inflation - the Fed's preferred measure of inflation - real interest rates have fallen by 100 basis points to minus 1.2 percent, a level not indicative of an economy that is closing in on achieving its dual mandate of maximum employment and 2 percent inflation.

What's more, wages are already rising slowly.

Last year, the Fed also erred on the dovish side. You might want to act sooner rather than later. Interest rate increases can lead to short-term drops in stocks. In both cases, analysts thought that more rate hikes and stronger growth projections would be on the menu. Higher rates are something Trump often called for during the presidential campaign, saying that Federal Reserve Chair "should be ashamed of herself", for keeping rates low. For savers hoping higher nominal interest rates from the Fed will push up interest on savings accounts, that impact is likely to be slower to make its way through the financial system. The bank said Wednesday there could be two more hikes this year, with an accelerated pace envisaged only for 2019.

Inflation has ticked up globally after years of negative and near-negative rates and massive injections of central bank money into the financial system in a bid to head off deflationary forces.