Fed pauses interest rate rise


The Federal Open Market Committee decided to hold interest rates steady at its January policy meeting, after raising its benchmark rate last month for the first time since 2006.

The Federal Reserve's rate-setting committee said that economic conditions are improving and its rate stance remains "accommodative" to support further strengthening.

Since its last meeting, "labor market conditions improved further even as economic growth slowed late last year," the FOMC's policy announcement stated at the end of its two-day meeting Wednesday. It voted to maintain the federal funds target rate at the current range of 0.25 percent to 0.5 percent, noting it will keep a close watch on economic conditions. "[T]he actual path of the federal funds rate will depend on the economic outlook as informed by incoming data," the committee said.

On Dec. 16, the FOMC boosted the federal funds rate target, its main lever on market rates, by 0.25 percent. Consequently, banks raised their prime rate a quarter-point to 3.5 percent, triggering an automatic increase in APRs for most credit cards, which mirror the prime rate. 

FOMC projections released in December show that a majority of members expect rates to rise another 1 percentage point by year-end, and as it does, it will take credit card rates higher.

variable APR information
Some card issuers are providing notices such as this one to make you aware rates are going up. Others are leaving the change in the fine print. Help us track rate notices by filling out this brief form.

While the Fed refrained from further rate increases this week, credit card holders are beginning to feel the effect of the December interest rate increase. When market interest rates rise, variable rate cards can raise their APRs on existing balances without warning you in advance. According to card agreements on file at the Consumer Financial Protection Bureau, most issuers adjust variable rates in the billing cycle that the prime rate changes, or the following one.

Some card issuers are including a warning notice about new, higher APRs on their statements. All must show the annual percentage rate -- APR -- used to calculate your interest on purchases, cash advances and balance transfers.

Offers for new credit cards are also getting pricier,'s weekly rate survey found. Of 100 cards tracked, 80 raised their rates since the Fed's December meeting, pushing the average APR above 15 percent.

Economic headwinds to aid cardholders?
Consumers may see a halting climb in interest rates this year rather than a steady progression, economic forecasters say. While sticking with a general direction of tighter rates, the Fed will likely proceed cautiously as it reflects on stock market turmoil fed by economic fears.

"The New Year is off to a rocky start," TD Economics economist Ksenia Bushmeneva wrote in a preview analysis of the FOMC meeting. Signs of slowing growth and rising volatility are "likely to slow the pace of rate hikes this year." TD forecasts the federal funds rate will rise only 0.75 percent through the end of 2016, with the next increase coming in March. If the Fed sticks to its pattern of moving rates in quarter-point increments, that suggests just three hikes this year.

The Fed says it isn't influenced by stock prices, but the market's 7 percent fall so far this year has its roots in economic threats. A collapse in oil prices may be a boon for commuters, but it is turning into a destabilizing force for the economy, as oil-dependent nations and companies struggle to pay their debts. And the bumpy slowdown of China's economy is sending ripples across the Pacific that may rock suppliers and lenders globally.

Another key number for the Fed to consider will come out Friday, when the government reports its first estimate of economic growth in the fourth quarter of 2015. Analysts are expecting gross domestic product to grow at an annual rate of about 1 percent, yielding growth for the full year of about 2.4 percent. The expansion, "while prone to the occasional misstep, trudges forward," Regions Bank Chief Economist Richard Moody wrote in an analysis. That should give Fed rate-setters the go-ahead to continue tightening rates gradually. 

See related: Quarter-point interest rate calculator

Published: January 27, 2016

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Updated: 10-27-2016

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