Federal Reserve officials are suggesting they’ll increase interest rates by the end of the year. However, a new chairman taking the helm in early 2018 could shift current policy. Consumers working to improve their credit scores should understand what’s going on and how policy changes could directly affect them.
During the financial crisis of 2007-2008, the Fed dropped interest rates to near zero. In addition, the Fed bought up assets on the open market from 2008-2014 in order to stabilize markets and further suppress interest rates. Since then, the Fed has intentionally kept rates at historic lows, even as the crisis passed and the U.S. economy largely recovered.
Now that the economy is stronger, the Fed is shedding its $4.5 trillion collection of assets with the goal of reducing its massive balance sheet. Unloading these assets is an unprecedented move and one the Fed wants to move slowly on so as not to disrupt the market and the overall economy.
As a part of this plan, the Federal Reserve will also begin to raise interest rates. The big questions are when, and by how much? So far in 2017, the Fed has slightly raised rates twice as part of their long-term financial recovery and stabilization plan.
In September, three Federal Reserve officials spoke to the press and suggested they would consider boosting short-term interest rates or supporting additional gradual rate hikes. The latest news suggests the Fed is looking to increase interest rates in December. With additional interest hikes, consumers will experience the ripple effect, perhaps most especially the people trying to repair their credit.
If interest rates take a sharp increase, it will become more expensive for borrowers to repair their credit. The slight June rate increase by the Fed led to credit card users having to pay an estimated $1.5 billion in additional finance charges for the year. If the next raise is by a higher amount, it will be incredibly hard for people to bring down their debt or improve their credit scores – especially consumers with low credit scores, since they are the borrowers typically given the highest interest rates on their credit.
Did you know there is a simple way to mitigate the problems associated with a low credit score? By signing up for tradeline renting, you can quickly boost your score. Improving your score enables you to get a mortgage or car loan or negotiate a lower APR on your credit cards. Even if you are not in the market for a large loan, potential changes in the leadership at the Federal Reserve could make having good credit much more desirable.
Janet Yellen, the Fed’s chairwoman since 2014, completes her four-year term in February 2018. President Donald Trump recently announced Jerome Powell has been appointed to succeed Yellen. Under a new chairperson, the Fed is likely to take a different direction, stock market guru Art Cashin told CNBC in September 2017. He stated that once the leadership changed, “We’re going to have a bit of a different Fed” when it comes to policy decisions. Early indicators suggest Powell will generally follow Yellen’s plan, but a booming stock market and growing economy might force him to go in another direction and increase interest rates more quickly.
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