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Fed raises interest rates for first time this year

The Federal Reserve raised its key interest rate today in keeping with the expectations of many economic forecasters.

The Fed also announced that it expects to make three more hikes in 2017, one more than it predicted in September.

The bump raises the Fed’s key short-term rate from the 0.25 to 0.5 percent range to a range of 0.5 to 0.75 percent.

The increase, the Fed’s first of 2016, reflects a moderately strengthening economy, including slight decreases in unemployment and a bump in household spending.

“We expect the economy will continue to perform well, with the job market strengthening further and inflation rising to 2 percent over the next couple of years,” Fed Chairwoman Janet Yellen said at a news conference after the announcement.

The announcement made no mention of economic policies proposed by President-elect Donald Trump. His expected push for lower taxes, infrastructure spending and less regulation is seen as spurring growth.

The Fed’s increase, meanwhile, could mean a slight uptick in costs for anyone who takes out a loan.

“The good news is that lenders have been anticipating the Fed’s move and have baked the likelihood of a rate hike into their loan pricing, meaning that mortgage rates are unlikely to change dramatically from where they are today,” said Doug Lebda, founder and CEO of LendingTree, an online loan broker. “The good news for housing is that if interest rates are rising because of an improving American economy, consumers are seeing higher incomes, greater job opportunities and better returns on their savings, all of which will work to help counteract rate increases.”

Edwin Tichenor, vice president of the Greater Harrisburg Association of Realtors, agreed with that assessment, which he expects to more or less play out on the local level as well.

While any interest rate increase will affect cost-sensitive buyers, he said the bump is not so much that it will scare anyone out of the market; instead, they just might have to slightly adjust what kind of house they can afford.

“Rates are still at historic lows, so if you’re thinking about buying or selling, it’s a great time to do so,” Tichenor said.

Banks, on the other hand, have looked forward to a hike, no matter how gradual, as they try to increase profits in light of the strict regulations and historically low interest rates that followed the 2008 recession.

Today’s decision matches the lukewarm forecast provided at last week’s Lancaster Chamber of Commerce economic forecast breakfast, where finance experts predicted a prolonged, mild recovery followed by a weak recession around 2019.

Jennifer Wentz
Jennifer Wentz covers Lancaster County, York County, financial services, taxation and legal services. Have a tip or question for her? Email her at jwentz@cpbj.com.

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