The federal interest rate has increased for the first time in nearly a decade, signaling the Federal Reserve’s confidence that the U.S. economy is improving following a Great Recession that hit Latino households the hardest.
The Fed’s move raises the interest rate from near zero to 0.25 percent, basically meaning it will cost a little more for consumers and businesses to borrow money. But it will be a little bit more profitable for people to hold or save their money.
For banks, the rate hike means banks will charge more when loaning their money. The Federal Reserve expects to continue to increase rates, but only minimally and gradually over the years.
The government lowered interest rates to near zero in 2007 as part of the effort to jump start the economy out of the Great Recession, which officially ended in June of 2009. Before the recession, the interest rate was usually around 5 percent before it was unprecedentedly dropped to 0 percent.
The question is whether or not the hike was justified, and if the economic situation for Hispanic families improved enough to deal with an interest rate hike.
During this recession, Hispanic families saw the largest single decline in wealth of any ethnic and racial group, according to the Pew Research Center, with Hispanic household wealth falling by 66 percent from 2005 to 2009.
Since the housing crisis, which triggered the recession, there have been signs that show an improving economic situation for Latinos. For instance, the unemployment rate for Latinos has improved from 9.4 percent in December of 2008, to 6.4 percent in November 2015. Median Latino household income increased gradually, from $41,689 in 2008 to $42,491 in 2014.
At the same time, there are signs that could indicate the economy hasn’t improved enough for Latinos: homeownership rate is down from 48.6 percent in 2008 to 46.1 percent in 2015 and the labor participation rate, or the number of Hispanics working, is down from 68 percent in December of 2008 to 65.6 percent in November of this year.
Regardless, the hike in the interest rate signals that the government believes that the economy can handle a hike in interest rate out of the unprecedented and emergency driven near zero levels from 6 ½ years ago.
Rates on mortgages and car loans aren't expected to rise much soon. The Fed's benchmark rate doesn't directly affect them. Long-term mortgages, for example, tend to track 10-year U.S. Treasury yields, which will likely stay low as long as inflation does and investors keep buying treasuries. But rates on some other loans, like credit cards and home equity credit lines, will likely rise, though probably only slightly as long as the Fed's rate hikes remain modest.
Contains reporting from the Associated Press.