Not much...yet. According to news that I read/heard...they intend this as a beginning point for perhaps three more increases over the next year. If that occurs...it will tend to show a more encouraging interest figure in the savings book department. The banking area that will show an immediate response is the lending end. Mortgage rates will rise. Interest charged on credit cards and other types of lending will rise. But I don't think we'll see much of an increase in earned interest for a while. However...the very fact that there's to be increase is a positive step. Sadly...it didn't happen soon enough for some of us.

I fully agree with all that Anne_CT said. Ditto

It's not so clear that an Fed rate increase is a positive step.

I believe total interest bearing debt owed by individuals (even forgetting card debt but thinking of only car and home loans) greatly exceeds their interest bearing investments (savings accounts or money market funds). If so, a rate increase would be unfavorable because it could cause a net decrease in household income.

Also, l think more individual investment is in shares than in interest bearing accounts. As most corporations borrow money, increases in lending rates can cause decreases in earnings, dividends, and ultimately stock prices.

The fed discount rate is one lever outside of law changes, news and fear vs greed speculation that controls the money supply and so economic growth and inflation. The linkage is indirect only. What people and markets think of a change, or of a possible change, tends to have more effect than changes or non changes themselves.

It'll lift bank stocks.

IMO it wasn't necessary as inflation has remained tame and the decline in the deficit share of GDP is already contractionary on the economy. And even with the unemployment rate as low as it is, labor markets still have plenty of slack. It may be done in anticipation that the trump budget will be big on deficit spending and the fed will need to be ready to offset that. Clearly the stock market is anticipating a stronger economy...

"It may be done in anticipation that the trump budget will be big on
deficit spending and the fed will need to be ready to offset that."

I tend to agree with this observation.

Isn't this usually done to moderate inflation?

anne_ct said..."It may be done in anticipation that the trump budget will be big on
deficit spending and the fed will need to be ready to offset that."

I tend to agree with this observation.

I agree with her that might be a fear, but if you listen to him and not the press, he wants to substantially downsize the federal government. Instead of paying for his programs with deficit spending, it looks like he plans to pay for everything by eliminating the department of education and downsizing many other departments.

"....by eliminating the department of education..."

I hope you're wrong dc. I'm a wait and see kinda gal who rarely believes half of what she reads and almost none of what she hears when it comes to this kind of news source. IMO...the DOE is the very last place anyone should look to cut funds.

wanda.....I wish we'd see 10% on cd's again! Those were the days!

Think about it, you really don't want to see that, because such a high rate on deposits would mean a mortgage rate of 15%+ and rates on other consumer borrowing over 20%.

The memory of the damages of inflation the last time that happened, in the late-Carter and early Reagan years, will keep the Fed from ever pegging interest rates so high again. As in, never again.

I have yet to see anyone substantially reduce federal govt spending. I doubt trump will do it either. Govt spending is too popular with the electorate.

About 30 years ago, when I sold mutual funds for a year, some folks, especially elders, chortled that they'd been receiving a really great return on their GICs, bonds, etc. (Canada Savings Bonds offered 19% that year).

They were full of disbelief when I told them that they'd actually earned peanuts, as interest earnings are taxed at top rate, with no credits, that if they were in 25% tax rate, that'd take their 19% or so down to about 14% plus a bit after-tax ...

... and did they know what inflation rate was, at the time? Many didn't know that it was about 12%.

When you buy a bond for $100.00 which will pay you $100.00 at maturity, several years down the road, that $100.00 will buy a lot less than when you bought the bond ... so you must put part of the earnings back with the basic fund in order to keep up your purchasing power. When you have 14% or so after-tax, and you add 12% to the basic kitty to keep up with inflation ... you're not getting to keep very much.

On the other hand ... a couple of years ago I visited a local Member of Parliament's office to ask them whether they knew how our central banks and governments were shooting a lot of citizens in the foot, especially seniors?

When I can only collect 2% interest on a GIC, bond, etc., and that interest is taxed at top rate, with no credits available, if I'm in 25% tax rate, that takes my after-tax return down to 1.5%.

When official rate of inflation is 2%, and if one has visited the stores recently, one suggests that some statistician is missing a few nuts to his bolts ...

... one ends up in the hole!

As many financial advisors usually recommended putting a higher percentage of total financial assets into interest-bearing investments as one becomes advanced in age, with fewer years for market recovery in case of major drops, current rates of interest hurt such investors, especially seniors, heavily.

Learning how money (and taxes) work ... an interesting hobby - that pays well!

ole joyful

The average annual inflation rate in the US since 2008 is 1.3%. Last year it was 0.1% (or 0.001 for those who like actual numbers rather than percentages). That's why and because of low interest rates.

My guess is that few people who participate in this forum pay as much as a 25% tax rate. Those who do can always buy tax free bonds, the yields both before and especially after tax have been several percentage points higher than conventional sources for many years.

I'm glad I did my refinancing last year (to do my kitchen). I have a very low rate, 15 yr fixed rate mortgage. It was cheap financing to do necessary house repairs and upgrades.

Some financial 'experts' think the Fed has waited too long, and its increases are too paltry. These people claim inflation is building. (Maybe I should buy another 30-roll pack of T.P. while it's only $25.)