WASHINGTON (CNNMoney.com) — As the economy begins to mend, the cost of borrowing money for a big purchase could start to increase.
Mortgages, in particular, have flirted with record lows during the recession. Credit card rates have been bouncing upward and, while auto loan rates are expected to stay low for a little while longer, they can’t stay low forever.
The Federal Reserve has played a key role in keeping the cost of borrowing so low, through the so-called fed funds rate, a benchmark that determines the interest paid by consumers and businesses on a wide variety of loans. That has been near 0% since December 2008, as the central bank worked to spur greater lending and economic activity.
But as the economy heals, that rate is sure to come up, as will the cost of a lot of loans – although economists assure that borrowing costs won’t rise until the economy is ready for it.
“The important thing to remember the Federal Reserve has a mandate to maximize employment and keep inflation low, so interest rates may be going up, but it will be in the context of better job growth,” said Zach Pandl, an economist at Nomura Securities.
Mortgages: Apart from what the Fed does on interest rates, economists and Fed officials have been predicting higher mortgage rates for several months, as the Fed winds down credit programs that artificially spurred cheaper loans.
