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Author: admin | Category: Lease Car Calculator | Date: 05.12.2014

The Federal Reserve System (also known as the Federal Reserve or just the Fed) is the central banking system of the United States. One way it attempts to achieve this is by controlling the federal funds rate — the rate that banks charge each other for overnight loans, which impacts interest rates. On its most basic level, inflation is the rate at which the prices of goods and services rise. There is no universal agreed-upon cause of inflation, but there are two widely accepted theories: demand-pull and cost-push. Low rates are great for consumers in the market for a new house or car — they encourage borrowing.
The Fed raises the federal funds target rate to slow inflation and return economic growth to sustainable rates. In 2007 to 2008, the Federal Reserve took extreme actions in response to the financial crisis in order to stabilize the U.S. The majority of economists didn’t expect a rate increase in 2014, and they were right. From a historical standpoint, car loans were at bargain-basement prices and terms were incredibly competitive between both big banks and credit unions. Home buyers continued to take advantage of still-affordable home prices and the historically low mortgage rates they saw at the end of 2013. Late in 2014, the Fed indicated that mid-2015 will see a rate increase, but there is no definitive word on how much or exactly when.
But at a June press conference, Yellen warned investors not to become overly confident in the current monetary policy. The housing market of 2014 was better than it had been in years, with a low number of homes entering foreclosure, favorable mortgage rates and more affordable housing options available to consumers.
30-year fixed-rate mortgages are typically tied to the yield on 10-year treasury bonds, and rates on adjustable rate mortgages (ARMs) are tied to the federal funds rate. In 2015, median home prices, mortgage rates and number of homes for sale are expected to see a moderate increase. Consumers with fixed-rate credit cards won’t see a change in their payments, but those with variable rate cards will.
Even if a consumer has a fixed-rate card, the credit card company can increase the rate at any time, as long as it provides the consumer with advance notice. Auto loan rates have been historically low in recent years, leading to an influx of new car purchases in 2014.


In 2015, auto loan rates will stay low and demand will remain high, which means competition between lenders will be fierce. The Fed will tighten money policy in 2015 before the unemployment rate gets too low, sparking inflation, but it will be a conservative and cautious approach, so as not to disrupt the recovering economy. While consumers are busy preparing for the holidays and end-of-year celebrations, we’ve been hard at work analyzing interest rate trends from 2014 and making predictions for what 2015 will bring. The current Chair of the Federal Reserve is Janet Yellen, who was appointed by President Barack Obama in February 2014. As inflation rises, purchase power falls — every dollar buys a smaller percentage of that good or service.
If rates get too high, financing is too expensive, which slows the economy and can even lead to contraction — a decline in growth for two or more consecutive quarters. Rate increases are also favorable for consumers with liquid assets — short-term CD, money market, checking and savings accounts will yield higher returns.
Early 2014 saw the same low rates we have today, but there was a surge in the housing market and new car sales. International Business Times reported that 2014 new car sales were on pace to hit their highest rate since 2007, immediately before the Great Recession. In March, they estimated the rate would rise to 1% by the end of next year and 2.25% at the end of 2016. The Fed lowered growth expectations for the remainder of 2014 and kept the short-term interest rate near zero. The Fed has confirmed a rate hike will happen, Janet Yellen has warned investors not to get too comfortable and the economy is actively rebounding, but the timing is still unclear and experts continue to debate the issue. The impact of a mortgage rate hike really depends on the kind of financing the consumer has, whether the mortgage has a fixed or adjustable rate, and what the loan is tied to.
The average 30-year fixed mortgage rate fluctuated between 4% and 4.5% for most of the year, and Freddie Mac is predicting rates will rise to 5% in late 2015. Most credit cards are linked to the prime rate and a federal funds rate increase will lead to higher interest payments. Consumers with credit card debt should prepare for a rate increase by either paying off the debt before mid-2015, transferring the debt to a less expensive alternative or trying to negotiate better terms with their credit issuers. The National Automobile Dealers Association expects the auto loan rate hike in 2015 to be minimal, with consumers continuing to benefit from favorable lending terms.The rate gaps between new and used cars will narrow, but consumers will still see a large disparity between new and used car loans with four-year repayment terms. A recent survey from WalletHub found that credit unions provide 40 percent lower interest rates for new car loans and 44 percent lower rates for used car loans than traditional banks.


Account holders may choose to break the terms of the CD to get into a better rate, which will result in penalties, or they can try to ride out the terms. Traditional banks, credit unions and alternative financial institutions will all offer competitive pricing on savings, money market and CD accounts, so savers should shop around before committing.
Interest rates will not begin to rise dramatically until the Fed sees full employment and stable inflation, which probably won’t happen until 2016 or later. Let’s take a look at what rates have been doing over the last year, where they are expected to land in 2015 and what it all means for consumers.
The Fed tries to sustain a rate of inflation of 2 to 3 percent to keep the growth of prices at a minimum.
Fed rate changes help the economy strike a balance between low inflation and sustainable economic growth; when rates are low, there is more money available for lending, which trickles down to consumers and stimulates economic growth. Higher rates mean it’s more expensive to finance goods, like homes or cars, or pay off debt.
The most credit-worthy consumers can get prime rate financing, the lowest possible rate available; but the more credit risk a consumer poses, the higher his rate will be over the prime rate. Since then, interest rates have stayed low and the economy has showed slow signs of improvement. New York Federal Reserve President William Dudley said in an October speech, “It is still premature to begin to raise rates. The average consumer household with credit card debt carries a whopping $16,000 balance, according to NerdWallet, and they should expect a change in the payment and terms. Car buyers will see better pricing and longer terms from big banks, as they start to vie for a bigger piece of the auto loan pie. The labor market still has too much slack and the inflation rate is too low… The consensus is that lift-off will take place around the middle of next year. Higher mortgage rates, stabilized pricing and an increase in inventory will hopefully help solve the supply and demand issues that plagued 2014. A basis point is one-hundredth of 1 percentage point.If you're resisting the urge to splurge on a new car, you may want to avoid this year's Super Bowl broadcast.



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