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Susan Tompor: How to plan for next round of Fed interest rate hikes

Susan Tompor, Detroit Free Press on

Published in Home and Consumer News

The easy money officially ends Wednesday, as interest rates, much like summer temps, heat up once again.

It's a "slam-dunk" that the Federal Reserve will increase rates by a quarter point after its meeting this week, according to Mark Zandi, chief economist for Moody's Analytics.

And it's likely we're in for two more quarter-point hikes in September and December, he said.

"If you are thinking about buying a car or home, sooner is better than later, but I wouldn't rush into anything, as rates, while rising, are still very low," Zandi said.

The U.S. economy -- with a national jobless rate at 3.8 percent in May, the lowest level in 18 years -- has put the Great Recession in 2008-09 in the rear view mirror. Consumers -- as well as business leaders -- are formulating strategies to cope with higher rates ahead.

The Fed began gradually tightening money with the first quarter-point rate hike in December 2015 -- then the first rate hike in nearly a decade. Since then, there have been another five rate hikes. The latest rate hike in March took the Fed's benchmark rate to a target range of 1.5 percent to 1.75 percent.

If the Fed raises rates as expected Wednesday, the overnight borrowing cost will be in line with the Fed's inflation target of 2 percent. For the first time in almost a decade, the cost of borrowing will no longer be essentially free. Say good-bye to super-cheap cash.

If the economy keeps doing well, some expect two or three more rate hikes in 2019, too.

The Fed noted in its statement in March that the "labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong in recent months, and the unemployment rate has stayed low."

We're hearing business news that makes sense in a higher rate environment. Flagstar Bank announced last week that it plans to acquire 52 bank branches from Wells Fargo, including 14 in Michigan's Upper Peninsula.

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