Georgia retirees and bankers stand to gain from the Fed rate hike announced Wednesday.
Homebuyers and shoppers who run credit card balances may find their purchases a little more expensive because of it.
For a lot of other people, including stock market investors, the effect is hard to predict.
One thing not in doubt: the Fed’s decision to raise its benchmark rate a quarter-point is a good sign for the overall economy, said Keith Lerner, chief market strategist at SunTrust Private Wealth Management, a unit of Atlanta-based SunTrust Banks.
“They think the economy has improved enough to get off of emergency lending,” said Lerner, who expects further hikes in 2016.
Here’s a look at how various people and parts of the economy may be affected:
SAVERS
Savers’ returns on money market and certificates of deposit (CD) accounts will likely begin rising — but slowly, experts caution.
It’s about time savers’ rates started rising again, said Helen Buffington, of Jefferson. Like many retirees, she covets better returns on her money with minimal risk. The Fed’s low-rate policy prevented that.
“I’m delighted. I just hope it keeps going up and up,” said Buffington, 88, who was co-owner and editor of The Jackson Herald until she retired five years ago. “We’ve been ignored for about six or seven years.”
Children of the Great Depression, she and her late husband kept most of their retirement savings in CDs and other fixed-interest investments because they were leery of the stock market. Those accounts paid lower and lower returns as the Fed kept its rate near zero for several years.
Now, perhaps, she said, “we’ll have a little more money to spend.”
THE STOCK MARKET
The stock market jumped Wednesday by about 1.3 percent, likely as part of a so-called “relief rally” after the Fed’s decision, according to some market watchers.
In the recent past, each hint of the Federal Reserve raising rates had sent stocks into a swoon, followed by a rebound when the Fed backed away. The repeated uncertainty over the Fed’s timing had ruffled investors.
The Dow Jones Industrial average rose more than 224 points Wednesday, to 17,749.
“There has been so much uncertainty and anticipation as to when the rate would go up and that uncertainty has been holding things back,” said economist and investment adviser Emily Sanders, managing director of United Capital’s Atlanta office.
But the relief rally probably won’t be big, she added. Other factors such as plunging oil prices are creating more volatility lately.
CONSUMER DEBT AND SPENDING
For many consumers, higher interest rates mean higher payments, which could crimp spending.
“Debtors are going to be the losers,” University of Georgia economist Jeff Humphreys said.
People with variable interest rate loans, such as credit card balances or home-equity lines of credit, will see rates rise soonest, but eventually fixed interest rates on car loans and mortgages will also rise as people take out new loans.
But many economists also think the Fed’s slow-motion strategy won’t slow the economic expansion much. Consumers also are seeing some modest wage growth and reaping savings from lower fuel costs.
“The consumer is actually feeling OK,” said Matthew Toms, managing director and head of public fixed income investments at Voya Investment Management in Atlanta.
HOUSING AND BUSINESS LENDING
Mortgage rates aren’t directly pegged to the benchmark Fed rate. Instead they ride along with the yield paid on 10-year Treasury notes, which is also influenced by the stock market, inflation and other factors.
Still, Lerner said he expects 10-year Treasuries to rise about 0.7 percentage points next year, to about 3 percent. Mortgage rates will likely rise as well, pushing some home buyers and owners to get off the fence to buy homes or at least lock in loan rates before they go higher.
The same is true for companies that have been holding back, but may want to lock in low interest rates by refinancing debt or going ahead with a new project, said Lerner.
The Fed’s rate increase is “a sign to them that the economy is healing,” he said. “It’s a call to action.”
Staff writers Michael Kanell and J. Scott Trubey contributed to this report.
