Yellen confirms interest rate hike is likely. Make these moves now.
Short-term interest rates likely are going up this month, so now is the time to pay down the balances on your credit cards and home equity lines of credit.
Federal Reserve Chairwoman Janet Yellen hinted strongly in a speech today that the central bank will hike the federal funds rate when it meets March 14 and 15. The increase most likely will be one-quarter of a percentage point, meaning interest rates on credit cards and home equity lines of credit will go up the same amount.
What you can do
As I wrote earlier in the week, you’ll save money by paying down the balances on credit cards and your home equity line of credit within a few weeks of the Fed’s rate increase. You also can move your credit card debt to a low-interest balance transfer card.
Home equity lines of credit are popular again, now that homeowners have regained equity following the housing crash. In many cases, the interest rates are attractive.
Auto loan interest rates will rise after the Fed rate hike. That means you can save money by buying a car before March 15.
You probably should wait to buy a certificate of deposit, especially if it’s short-term, because rates on CDs might rise after the Fed hikes rates. That’s one of the surprising benefits of a Fed rate increase.
What Yellen said and meant
Here’s the key sentence in Yellen’s speech in Chicago: “Indeed, at our meeting later this month, the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.”
Topic of Yellen’s speech today is ‘scaling back accommodation.’ Might as well title the speech ‘Hint! Hint! Hint!’
— Greg McBride, CFA (@BankrateGreg) March 3, 2017
Translated into normal English, she means that the Fed will probably hike short-term interest rates if the monthly employment report is as strong as expected. The February employment report will be released the morning of March 10.
The consensus is that it will show that the economy added a net 227,000 jobs last month. If the report’s number is close to that, then Yellen implies strongly that the Fed will raise the federal funds rate this month. Job growth has averaged 183,000 a month in the last three months.
The probability of a Fed rate hike this month passed 80 percent after Yellen’s speech, according to the CME Group’s FedWatch Tool.