For first time in four years, the Federal Reserve raised short-term interest rates by a one-quarter of a percentage point last week and almost immediately some local for-profit lending instituions followed suit. But Kaua‘i Community Federal Credit Union is taking
For first time in four years, the Federal Reserve raised short-term interest rates by a one-quarter of a percentage point last week and almost immediately some local for-profit lending instituions followed suit.
But Kaua‘i Community Federal Credit Union is taking a wait-and-see approach.
“We don’t react immediately with the market,” said Tess Shimabukuro, senior vice president of accounting and operations. “We take a conservative approach. As rate changes are announced, we analyze our current situation and generally make changes in our rates, taking into consideration the safety and soundness of the credit union cooperative as well as what would have the least adverse impact on our membership.”
Within a couple hours of the Fed hiking the federal funds rate from 1 percent to 1.25 percent, Bank of Hawaii, First Hawaiian Bank, American Savings Bank, Central Pacific Bank and City Bank had all hiked their prime lending rates from 4 percent to 4.25 percent.
How will it affect us here?
It probably won’t affect credit card companies, whose profit margins are large, and can usually afford not to raise rates when the Fed does. As for car loans, automakers use low interest rates to subsidize the sale of vehicles. They also have the option of recouping losses through vehicle prices. As for homeloans, the could actually go down at first, say some experts.
Banks package and sell mortagages to investors, so loans are based not on what the Fed does, but by profits. Investors either buy Treasury notes or mortgages. And because the bond market is a safe harbor in uncertain times — and higher rates get people worried — more people bought bonds.
The more they buy, the less return the Treasury Department has to offer to sell them. So bond prices rose, and the yield on 10-year Treasury notes fell, from 4.69 percent Tuesday to 4.59 percent Wednesday.
The Honolulu Board of Realtors will report officially Friday that most major lenders in Hawaii are quoting either 5.975 percent to 6 percent for a 30-year fixed-rate home mortgage.
Meanwhile, economists hinted at further, modest one-quarter point rate increases in the future, including one at the next meeting on Aug. 10.
The Fed made clear, however, if will take more aggressive action if needed.
This restated a position that Greenspan had articulated earlier.
“The committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability,” the Fed policy-makers said.
Their latest assessment of the state of the economy was upbeat. The Fed said the economy is expanding at a solid pace and that labor markets are improving. On the inflation front, the Fed said that “although incoming inflation data are somewhat elevated, a portion of the increase in recent months appears to have been due to transitory factors.”
