America’s second interest rate in a decade could be here soon.
The Federal Reserve appears poised to raise its key interest rate at the end of a two-day meeting on Wednesday. It would only be the Fed’s second rate hike since 2006. The first came in December 2015.
Investors are putting a 97% chance of the Fed raising its short-term interest rate by 0.25%. Right now, the rate hovers in a range between 0.25% and 0.50%.
Here’s a few fast facts about what led the the Fed to this point and on its future.
1. More Americans have jobs
Fed officials wanted to see a stronger job market before raising rates again. They got their wish.
America has added nearly 2 million new jobs so far this year. The unemployment rate has fallen to 4.6%, the lowest level since 2007. Even the underemployment rate — referred to as the U6 rate — is at its lowest point since April 2008.
After years of stagnating, wage growth has also picked up at times this year, and inflation looks poised to pick up next year.
2. What a rate hike will mean for you
Higher interest rates affect millions of Americans, especially if you have a credit card or savings account, or want to buy a home or a car. American savers have earned next to nothing at the bank for years. Now they could be a step closer to earning a little more interest on savings account deposits, even though one rate hike won’t change things overnight.
Rates on car loans and mortgages are also likely to be affected. Those are much more closely tied to the interest on a 10-year U.S. Treasury bond, which has risen rapidly since the election. With a Fed hike coming at a time when interest on the 10-year note is also rising, that won’t help borrowers.
3. The Fed could change its plans again
This year initially looked like it would be the Fed’s year to finally get away from near-zero interest rates. Last December, the central bank projected raising rates four times in 2016. Then a slew of factors — low oil prices, China’s slowing economy, a weak jobs report — dashed those plans. Now, the Fed is hoping for just one rate hike this year.
The Fed revises its outlook four times a year. In their last three meetings, Fed leaders have lowered the central bank’s forecast for U.S. economic growth. Fed officials project the U.S. economy only growing a mere 1.8% this year and 2% next year.
Those projections could change Wednesday, but the Fed isn’t expected to change its outlook based on President-elect Donald Trump’s policies just yet. Fed officials say there are too many unknowns about Trump’s policies to predict how they’ll influence the economy.
4. Trump will have a major influence over the Fed’s future
The Fed seeks to be independent of politics when it comes to its decisions on interest rates. But many Fed leaders have to be nominated by the president and confirmed by the Senate.
Two spots on the Fed’s committee are currently open for Trump to nominate. Looking ahead, Fed Chair Janet Yellen’s term ends in January 2018, while Vice Chair Stanley Fischer is up for re-nomination in June 2018.
Within the first 18 months of his presidency, Trump could reappoint four of the 12 people on the Fed’s powerful committee — an unusual amount of influence for any president.
