The overnight rate is the interest rate the central bank sets to target monetary policy. Since the Federal Reserve decides when to increase the overnight rate, it can be a good predictor for the movement of short-term interest rates for consumers in the broader economy. When the Fed increases its interest rate to the banks, the banks then tend to pass on some, if not all, of that increase to the consumer. Therefore, the higher the overnight rate, the more expensive it can be to borrow money.
After an extremely low interest rate in the recession of 2008, the overnight lending rate has been increasing slowly over the past 10 years and is expecting another rate hike in December, three more hikes in 2019 and another increase in 2020.
As mentioned previously, many predict that this overnight rate hike will result in increased interest rates being passed on to the consumer.
30 YEAR FIXED RATE MORTGAGE INTEREST RATE FORECAST 2018, 2019, 2020
Since the Fed has continued to announce project rate hikes until 2020, here are some suggestions for you, the consumer, to think about now:
1. Pay close attention to variable interest rates. These will continue to rise as the federal rate rises. Credit cards interest, home equity lines of credit and adjustable rate mortgages will continue to climb. Student loans with variable interest rates may also be impacted.
2. If you are a borrower with an adjustable rate mortgage, consider refinancing if your interest rate is set to change in the next 1-2 years.
3. The sooner you can lock in a fixed rate mortgage, the better. Even if you are in the process of searching for a home, many lenders will let you lock in a fixed rate once you have been pre-approved for a loan.