3 ways an interest rake hike matters to you

Local economists that predicted a rate hike announcement today were proved right when the Federal Reserve Board delivered a plan Wednesday afternoon to raise its target for interest rates by 0.25 percent.

After the economic downturn of 2007-08, the Federal Reserve took emergency measures such as reducing the price banks pay to borrow money to near zero, which in turn lowered borrowing costs for homeowners, credit card holders, business owners and others.

“What’s historic about this move is that it’s a move,” said George Mokrzan, economics director for Columbus-based Huntington Bancshares, noting rates haven’t increased since 2006. “Most of the U.S. economy is the U.S. consumer and the U.S. consumer is still in pretty good shape.”

Here are three ways a rate hike matters to you:

1. BORROWING COSTS. "What the Fed is determining is the rate banks pay to borrow from each other, which is effectively the price of money. (That) influences — in one way or another — every consumer, business, or government and every financial instrument. Fixed mortgage rates are only loosely connected to the Fed's action. Adjustable rate mortgages, credit cards, and home equity lines of credit will be more directly affected," said Greg McBride, chief financial analyst for Bankrate.com.

2. ECONOMIC GROWTH. A rate hike would signal a stronger national economy that can handle it. "We believe that the Fed is, if anything, overdue in starting the rate normalization progress. Zero interest rates were an extraordinary response to an extraordinary environment. While growth continues to be below trend, an extraordinary policy can no longer be justified," said Jeff Korzenik, chief investment strategist for Fifth Third Bank.

“We continue to maintain that the economy will move forward on labor market gains, a strengthening consumer and demographics that favor housing. When these positives are weighted against the risks inherent in excessively low rates, a rate hike is the most prudent path,” Korzenik said.

3. GRADUAL INCREASE. While a rate hike could increase borrowing rates from historical lows, no big jump is expected. "Interest rates — even after Wednesday's increase — will be very low. Even with the slightly higher rates that Wednesday will bring, the Fed will still be providing stimulus to the U.S. economy. Additionally, the Fed believes they will increase rates only very gradually… over the next few years," said Cincinnati money manager Jim Russell.

RELATED: Will interest rates rise? We asked local economic experts

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