Northern Michigan Economists, Experts Reacts To US Interest Rate Uptick
"This action marks the end of an extraordinary seven year period.".
A key interest rate hike…
The US Federal Reserve announced a new quarter-point increase.
The Federal Reserve’s key increase rate sat at zero since the recession in 2008.
They say this hike is a sign the economy is recovering.
Immediate reaction was positive… here’s a look at how investors reacted to the news.
The Dow shot up 223 points to 17,748.
The NASDAQ added 75.
And the S&P 500 went up 29 to 2,073.
9&10’s Cody Boyer and photojournalist Jeff Blakeman dug into what the rate hike could mean for you.
The Fed’s quarter-point hike from .25-percent to .5-percent may not sound like a very big deal.
But it will likely impact the whole economy, and your money.
"What the Fed is going to decide now is essentially going to affect the entire banking sector," says Dimitrios Staikos, CMU economics professor.
A historic increase of interest rates nearly ten years in the making following decades of reduction.
"If they raise interest rates, that’s going to raise borrowing costs for all banks in the US and that will be later on passed on to us, one way or another," Staikos says.
Professor Staikos at Central Michigan University says this move is a signal.
"The signal would be that the Fed would no longer be actively stimulating the economy," Staikos says. "It would be assuming that the economy is doing fine and no longer needs external help and it will signal that there would be more increases to follow."
Staikos says historically small unemployment rates throughout the country are evidence of an improving economy.
But he says there’s a limit.
"Unemployment is at historic lows. A lot of people argue it’s already at the structural rate," Staikos says. "I don’t think unemployment will decline further. Next, we might see an increase in wages."
On the other hand, Staikos says there are positives to the uptick.
"Raising interest rates will raise borrowing costs but at the same time you avoid risks of high inflation, you avoid risks of heating the economy and you avoid risks of creating the basis for future bubbles," Staikos says.
Businesses and homeowners are affected… trying to get the lowest rate as rates rise.
"The phone calls that we are getting is not just, ‘I want to lock,’ but ‘How soon can i lock?" says Katy Huckle, senior residential lender at Cadillac’s Independent Bank.
Katy Huckle handles mortgages and other loans in Cadillac.
She says banks started seeing impact before the announcement.
"It’s significant. It’s a good sign for the economy," Huckle says. "Borrowers will say, ‘Oh shoot, I want to go back to 4-percent even on a 30-year fixed.’ It’s looking like that ship has sailed."
Huckle says her bank’s customers want to play it safe.
“Our customers want to lock their interest rate right now," Huckle says. "They are not up for any type of a gamble or a type of risk.”
In the end, Staikos says there shouldn’t be cause for concern just yet.
"I think people should not be worried about anything," Staikos says. "The Fed has shown, judging from their results, that they’ve done a good job so far. If interest rates go up, then most likely that is what the economy needs."
Staikos says the long-term affects of this uptick remain to be seen.
Economists say the Fed could be looking at another increase in March.