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The Federal Reserve decided to keep interest rates at their current levels. That means the federal funds target rate will remain at 5.25% to 5.5%. Furthermore, it is highly unlikely that the Federal Reserve officials will reduce interest rates during their next March 19-20 meeting.
The benchmark interest rate is used to set other interest rates: everything from credit cards to mortgages, and business to auto loans. But there's more. Here are key takeaways of how the Fed's interest rate impacts your money:
Interest rates offered by banks and other lenders: the Fed's rate influences the prime rate, which is used in some of the popular loan products. If the Fed interest rates go up, the prime rate follows, which translates into more expensive borrowing costs to finance a car, a house, or purchases on a credit card. If your loan or a credit card has a variable interest rate, you can expect to see higher rates in one or two billing cycles following the increase in the Fed's rate.
Approval odds for new loans: higher rates from the Fed will make it harder for borrowers to get approved for new loans (and vice versa). This applies to any type of credit: mortgages, credit cards, and auto loans. This happens because lenders become pickier about who they lend money to, as they fear they may not get paid back. And when the rates go down, lenders tend to loosen their approval requirements.
Savings: higher interest rates mean better times for savers, as savings' yields go up together with the Fed's interest rates and vice versa. There's a caveat, however, that major banks do not hurry to lift yields as soon as the interest rate goes up, but they tend to lower yields quite quickly when the Fed lowers its rate.
Stocks and retirement accounts: investors flourish when the interest rates are low and become concerned when rates rise. It is important to stick with your long-term strategy when it comes to your retirement accounts and investments.
Your purchasing power: higher Fed interest rates mean higher prices, and lower rates mean prices will rise slower and the demand can be increased.
Job market: higher interest rates mean companies have less money to pay their employees, which may lead to layoffs and fewer new jobs. And lower interest rates mean companies have more money to expand.
