The U.S. central bank is expected to raise interest rates slightly Wednesday afternoon as the economy nears full employment and inflation rises modestly.
Leaders of the U.S. Federal Reserve have been debating interest rate policy for two days here in Washington, and most analysts predict they will raise rates one quarter of a percentage point (putting the rate in a range between three-quarters of a percent and one percent).
PNC Bank economist Gus Faucher says the consumers who drive most U.S. economic activity are “in good shape” with “more jobs and wages… increasing.”
A recent survey of key financial leaders by the Association of International Certified Professional Accountants shows the highest level of optimism about the economy in a number of years.
The Fed slashed interest rates to record lows during the recession to encourage growth and fight unemployment, but improving economic data apparently have persuaded experts the economy no longer needs such help. This will be the second slight interest rate increase in a couple of months, and analysts will be watching Fed statements closely for clues about how soon and how far rates will go up this year.
Officials use higher interest rates to cool the economy and fend of inflationary spikes that could hurt growth.
Higher interest rates will cost U.S. credit card holders $1.6 billion more in interest expenses this year, according to experts at Wallethub.com. Experts at the website track credit card use and say higher costs will make it harder to pay off these bills, which they expect will reach an all-time high later this year.
Wallethub says it is a little harder to track exactly how much raising the benchmark interest rate will affect home and auto loans, but they say recent experience shows they are likely to become more expensive, as well.
If officials keep interest rates too low for too long, they risk sparking an abrupt inflationary jump that could force the Fed to raise rates high and fast, disrupting the economy. Officials raise interest rates to cool the economy and fend off inflation. Overall, the Fed is trying to guide the economy toward full employment while keeping price increases to about two percent a year.