How Fed hike will affect consumers, overseas economies

WASHINGTON — Credit card holders will soon pay more. So will people with adjustablerate mortgages or home equity lines of credit.

But most would-be home buyers needn’t worry. And auto loan rates won’t likely change much. For savers? Rates should creep up, at least for the highest-yielding CDs and saving accounts, though on average they’ll still pay a pittance.

The cumulative impact of another Federal Reserve interest rate hike — its fourth in 18 months — will range widely for individuals and businesses with loans or income-producing accounts.

And the consequences range beyond U.S. shores. A series of Fed hikes generally means that overseas investors in search of interest income can increase their returns by shifting money into the United States. Higher U.S. rates also tend to cause an outflow of capital from developing countries that can illafford it.

Here are some questions and answers on what the Fed’s moves could mean for consumers, businesses, investors and the economy:

Because fixed-rate mortgage rates don’t typically follow the Fed’s changes. Sometimes they even move in the opposite direction. So it doesn’t necessarily make sense to rush into buying a home or refinancing a mortgage. The hike often won’t translate into higher mortgage rates.

Fixed long-term mortgages tend to track the rate on the 10-year Treasury, which, in turn, is influenced by such factors as investors’ expectations of future inflation to global demand for U.S. Treasurys.

In December 2015, a week before the first increase, the average 30-year fixed mortgage rate was 4.06 percent, according to Bankrate. com. It actually fell for most of 2016, then jumped later in the year and peaked at 4.44 percent in mid-March this year.

But since then, longterm mortgage rates have declined and are back to almost exactly where they began: The 30-year average was 4.04 percent last week.

Even the increase that began in late 2016 had little to do with the Fed. Rather, investors dumped Treasurys and bought stocks in anticipation of faster growth and higher inflation after Donald Trump’s election. Better growth overseas also raised optimism.

But as Trump’s tax and infrastructure spending proposals have stalled, investors’ outlooks have dimmed. Demand for the 10-year Treasury has risen, and so its yield has dropped, reducing mortgage rates with it.

Hard to tell. The Fed expects to lift its benchmark rate one more time this year and three times in 2018. Eventually, those increases should put upward pressure on mortgage rates, but it’s impossible to say when.

Mortgage rates are still very low by historical standards. Before the Great Recession, the 30-year rate had never dipped below 5 percent.

Doug Amis, a certified financial planner in Cary, North Carolina, says consumers with less-than-sterling credit can expect to pay more, especially when financing the purchase of a used car.

“There’s going to be an opportunity to increase those rates higher,” Amis said. “So if you have poor credit, this is going to impact you.”

Still, even with another rate hike, the impact on consumers and businesses is likely to remain mild, as rates remain very low, relative to years ago, Amis noted.

Higher rates in the United States tend to attract more investment from overseas. The European Central Bank and the Bank of Japan are still keeping their benchmark rates near zero to try to stimulate those economies. So investors can earn more by investing in dollar-denominated assets.

That inflow pushes up the value of the dollar, which can make U.S. exports costlier overseas. It can also pull money out of developing countries, where rates are usually higher but government bonds carry more risk. A flow of funds out of developing nations can lower their currencies relative to the dollar, making it harder for businesses in those nations to repay debts they have incurred in dollars.

In a few cases, yes. Greg McBride, chief financial analyst at Bankrate.com., says some smaller banks are starting to offer higher rates on CDs and savings accounts than larger banks are. The huge national banks already have “more deposits than they know what to do with,” McBride said, so haven’t lifted their rates at all.

As a result, the disparity between the smaller local banks and nationwide institutions is widening, he said: “Exploit that difference. It’s money in your pocket.”