For the third time since December, and the second time this year, the Federal Reserve last week raised a key, short-term interest rate.
In the wake of the increase, Jarrod Yarnell, President and CEO of First National Bank of Paris, said consumers are going to feel an impact from the rate increase. Yarnell also called the rate increase a good thing because of what it means.
“Rising rates is an indication the economy is healthy,” Yarnell said. “There’s a feeling that rates have been too low for too long. Right now, businesses are strong enough to absorb a rate increase. I think that’s what they are telling us.”
Yarnell’s thinking on the subject was verified when Fed chair Janet Yellen said, after the increase was announced, “It reflects the progress the economy has made.”
The rate increase means the Fed’s key interest rate is now 1.25 percent, a .25 percent increase. Interest rates have been kept low since the Great Recession began in 2008. However, the economy has been growing since 2009. For example, U.S. unemployment in May was 4.3 percent, the lowest level since 2001, and inflation remains low.
But the rate increase will affect consumers in several ways, Yarnell said.
“The rate increase will cause the prime rate to rise,” Yarnell said. “That’s the rate the best customers get. Prime is also the rate many adjustable-rate items — such as credit cards and adjustable rate mortgages — is pegged to. The rate change will affect all those entities. Customers will feel it.”
And, more increases are expected. Fed watchers, as Yarnell pointed out, expect one more increase this year and three more next year.
“Now that’s just a projection and it doesn’t mean it’s going to happen,” Yarnell said.
However, Yarnell said this is a good time for consumers and businesses to take a look at their debt obligations and consider their options.
“Businesses and consumers should look at their debt and plan for the possibility that interest rates could increase,” he said. “They should begin assessing the situation and what it means for them and look at maybe locking in rates because even with this latest increase, rates are at historic lows.”
And, like the last three increases, future increase can be seen as a positive sign.
“If rates do go up another point in the next 18 months, that’s a sign the economy is growing,” Yarnell said. “That could mean personal income, profits and wages are growing, as well.”