Interest rates have become a highly visible issue with news stories about rate changes almost every day. Much of the press coverage concerns the Federal Reserve and its chairperson, Jerome Powell. Jerome Powell became chairman when Janet Yellen retired in early 2018.

The Federal Open Market Committee (Fed) monitors the economy and makes changes to the key “overnight loan” rate that influences interest rates throughout the economy. By adjusting this rate, they try to keep inflation under control and stimulate the long-term economic growth.

After cutting the fed funds rate to near 0% following the 2008 Financial Crisis, and keeping it there through early 2015, the Fed began raising rates in December 2015. Through December 2018, they raised rates an additional five times to a range of 2.25% to 2.50%. Starting in August 2019, they began decreasing rates by a quarter point through October 2019 to a range of 1.50% to 1.75%. Then in response to recession fears due to the COVID-19 pandemic, the Fed again lowered the rate to near zero.

Due to supply chain problems and pent-up consumer demand following the pandemic inflation surged to more than 8% in 2022, causing the Fed to rapidly increase rates. It raised rates seven times in 2022 and four times in 2023, including four major rate hikes of .75% each, targeting an eventual fed funds rate of between 5% and 5.5%.

The Fed finally paused rate hikes in the summer of 2023 anticipating a cooling period for inflation, which fell from its peak of 9% in the summer of 2022 to 3.1% in January 2024. The expectation is that the Fed will begin to cut rates later in 2024 if it gets inflation under control.

Interest rates also play a major role in our economy and in our daily lives, especially when it comes to borrowing.

Develop a Borrowing Strategy

The wise use of credit can be an important part of your personal and business financial strategies.

• Use common sense. Never borrow what you can’t repay. Prioritize your borrowing based on long-term value. Reserve some borrowing capacity for emergencies.
• Consider all the terms. Borrowing can be confusing. Review all the terms and conditions before you sign any credit application.
• Get help if you need it. If your borrowing gets out of control, take immediate steps to solve the problem. Contact lenders to work out a repayment plan. Quit using (or cut up) credit cards. Seek the help of a qualified credit counselor.

Where Interest Rates are Headed

Interest rates have risen from their recent historical low levels. Though accurate predictions of future interest rate movements are difficult, with the Fed aiming to lower rates again, you can expect mortgage rates to decline again. To take advantage declining mortgage rates, here are two ideas to consider:

Real Estate Loans

Mortgage rates are declining, as are many home equity loan rates. Now would be an opportune time to compare rates for a mortgage on a new home, or refinancing an existing mortgage or use a home equity loan to consolidate your debt with a lower rate (and potential tax advantages).

Credit Cards

All credit cards are not alike. Differences in fees, interest rates and associated benefits for using the card should all be considered when choosing the one that makes most sense for you. If you carry over balances and pay interest on those balances, having a card that charges lower interest rates can mean the difference of hundreds or thousands of dollars each year. With an average balance of $5,000, the difference between an 8% and 18% rate means $500. You owe it to yourself to compare rates and we invite you to look at our low rates.