Higher Fed rate mixed bag for economy

With the news Wednesday that the U.S. Federal Reserve is raising its key interest rate by a quarter-point, the world will not come to an end, according to South Carolina economists.

But there will be some winners and losers in the first Fed rate hike in nearly a decade.

Wall Street, for one, usually doesn’t like rate hikes because it costs companies more to borrow money, according to Joseph Von Nessen, an economist at the University of South Carolina’s Moore School of Business. But it also could be good news because a Fed rate hike indicates the economy as a whole is improving, he said.

“The stock rates and interest rates are inversely proportional to each other,” he said. “It’s a balancing act. We’re going to see a short-term adjustment in the stock market. But that doesn’t mean we’re going into a bear market. Stocks will continue to rise.”

Frank Hefner, a College of Charleston economist, said that the market could have been more affected by the feds not raising rates, because it would have caused uncertainty, which investors hate. “It would have been catastrophic,” he said. “The market doesn’t like mixed signals.”

Federal Reserve policymakers have slightly lowered their projections for short-term interest rates over the next three years, a sign that policymakers may move slowly with little expectation about changes in the economy. The Fed on Wednesday lifted its key interest rate by a quarter point to a range of 0.25 to 0.5 percent, up from near zero for the first time since December 2008.

Here is what S.C. economists say fares best and worst with rising interest rates:

LOSERS

The home market

With the Fed rate rising, mortgage rates are likely to rise as well — but only very slightly. That will make it more expensive for someone to buy a home, but that increase could be negligible over the course of the 30-year loan. Also, people with adjustable-rate mortgages who have been enjoying historic low interest rates are likely to see their monthly payments rise.

Many businesses and potential employees

The hike will make it less attractive for businesses to borrow money for expansion or new projects. Less investment means companies might not create as many new jobs. But more importantly, the economists said, higher interest rates mean a stronger dollar against foreign currency, and that is problematic for businesses who sell their products overseas.

Credit card holders

Fixed rates on new debt will be tied to the Fed hike — from credit cards to cars. And adjustable-rate cards will go up. But again, the increases will be slight.

WINNERS

Savers

Anyone who has interest-bearing accounts — from checking to savings to money market accounts — could will see more returns depending on their portfolio. That will certainly be important to Baby Boomers, who could see their nest eggs grow faster, but only marginally faster.

Foreign travelers

Higher interest rates mean a stronger dollar. A stronger dollar means your money stretches farther when traveling overseas.

Banks

Low rates have forced banks to narrow the gap between the interest rates they offer savers and the rates they charge for loans. They will benefit from future credit card and mortgage interest rate hikes.

The Associated Press contributed

This story was originally published December 16, 2015 at 2:08 PM.