In a move that was anticipated, Federal Reserve Chair Janet Yellen announced yesterday that the federal funds rate, its key benchmark rate that represents the interest rate it charges on loans to member banks, will be raised by .25%. The last time the Federal Reserve Board raised this rate was one year ago in December.
This rate increase will have minimal effect immediately on longer term loans like mortgages, auto loans, and student loans. Loans that are ultimately based on a bank’s prime rate that tend to have shorter terms, like home equity loans, credit cards, and adjustable rate mortgages, however, will likely be pushed up in the near future as a result of this action. Indeed, following the Fed announcement, several major banks announced that they were raising their prime interest rate from 3.5% to 3.75%.