The days of rock-bottom rates are nearly over.
The central bank will aggressively unwind last year’s bond buying sooner than originally planned after recent reports on inflation continued to show a sharp rise in prices.
While the Federal Reserve said Wednesday that interest rates will stay near zero for now, the quick tapering of bond purchases is seen as the first step on the way to interest-rate hikes next year.
“For consumers, the writing is on the wall that interest rates are likely to start climbing in 2022,” said Greg McBride, chief financial analyst at Bankrate.com.
The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate that consumers pay, the Fed’s moves still affect the borrowing and saving rates they see every day.
“Reducing the purchase of long-term assets is going to likely reflect a faster increase of long-term interest rates and that should affect borrowing and saving,” said Yiming Ma, an assistant finance professor at Columbia University Business School.
Since the start of the pandemic, the Fed’s historically low borrowing rates have made it easier to access cheaper loans and less desirable to hoard cash.
Now that the central bank’s easy money policies are nearing an end, consumers will pay more to borrow. Some already are.
Borrowing costs go up
As the Fed tapers its bond purchases, long-term fixed mortgage rates will edge higher, since they are influenced…
