Interest rate pain can take a while to sting

INTEREST rates went up again last week. And Federal Reserve Chairman Jerome Powell said Wednesday they will continue to rise.

But what does that really mean for you?

This was the second time that the Fed had raised rates this year. Two more rate hikes are expected by Dec. 31, and rate increases will continue into 2019 and probably 2020 unless something dramatic happens to cause the Fed to change its mind.

As I’ve mentioned many times before, the Fed can only raise rates on short-term loans. The only thing the Fed controls directly is the socalled Fed Funds Rate, which is the rate that banks borrow from each other in very short-term, overnight transactions.

The Fed’s actions, however, influence other interest rates. Powell and his gang can’t tell the bond markets, which are enormous, where to set longer-term rates. That’s deter- mined by how attractive US government securities are to foreigners and Americans who invest in such things.

Lending Tree, which lends money to consumers online, recently did what I should have done a long time ago. It went down a list of interest rates that are directly affected by the Fed’s action and those that aren’t. Here’s the breakdown:

Adjustable-rate mortgages and home-equity credit lines are based on short-term rates like the Fed controls and will be affected.

But 15-year and 30-year mortgages won’t feel the sting until the financial markets drive up the yield on securities closer to those maturities. Look at the rate on the US government’s 10-year note for indication of where mortgage rates are going.

The rates on credit cards will feel an immediate impact. So pay off this revolving debt in full every month to beat the Fed.

The extra quarter-point rate increase last week, Lending Tree estimates, will result in an additional $2.2 billion in interest payments by credit card users.

Auto loans won’t be affected much, because that kind of borrow- ing is often tied up with terms of the car purchase and is often offered at a discount.

Rates on deposits have already been increasing. Oh, you haven’t noticed? That’s because the rates that banks pay out moves up very slowly. When banks get desperate enough for customers, savings rates will rise.

Eventually all rates will feel the sting of the Fed increases. Some, however, make take months.

Paul Ryan, the Wisconsin Republican who is Speaker of the House, said Wednesday that the tax law changes have already been “making things better” for “working families across America.”

Ryan was against President Trump’s tax cuts until he wasn’t. And then he unexpectedly decided to quit Congress and go on to, I guess, better things.

And you really can’t argue with Ryan’s most recent claim. Americans do have more money in their pockets right now because of the tax cuts. So maybe “things” are “better,” for now.

But this also is indisputable: The US deficit for the first half of 2018 was around $600 billion, which was $78 billion worse than at the same period of 2017. So that could lead to a $1 trillion deficit for 2018, something that wasn’t expected to be “achieved” until 2020.

Overall US debt right now? When I looked Wednesday, the amount owed by the US was $21.162 trillion — but it goes a lot higher every day.

So the real question isn’t whether Americans are doing “better” now. It’s how are they — and their children — going to handle the very huge amount of debt that will accumulate because the US government continues to spend too much at the same time it is making people happy with tax cuts.

But this is also more than just a numbers game. It was reported this week that Russiaa had dumped half the US government securities it owned, probably as a protest against what our country is doing diplomatically.

Russia is small potatoes as our creditors go.

But the precedent it is setting isn’t a good one.

If foreign entities stop buying US government securities — or, worse, beginning selling off what they already own — America is going to have plenty of trouble funding its affluent lifestyle in the future.

Ryan won’t be in Congress to witness any of this. But our kids will have to deal with it. And with all the debt they are already accumulating in their own lives, they won’t be able to handle it. This bit of news got a lot of play this week: Millennials — Americans age 18 to 37 — are lousy tippers. In fact, they say they would prefer higher prices if tips were eliminated. CreditCards.com, which conducted the survey of 1,000 people, says millennials might just have ppicked up the cheap-tip habit as they traveled to foreign countries where tipping isn’t a tradition. Or because of companies like Uber, where you can get away without tipping because you don’t have to hand cash to the driver and suffer his derisive stare. Let me suggest this: Americans in that age group may be lousy tippers because they don’t have a lot of money and are becoming frugal. And that could be a sign of bigger problems in the future.