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December Fed update: Fed rates rise, but bank rates may be rising faster

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The Federal Reserve recently announced it would raise short-term interest rates for the third time this year. Rising interest rates are good news for savers and bad news for borrowers, and consumers should be aware that some financial institutions have already been making rate moves ahead of the Fed.

The Fed's concern with low inflation eases

The Fed's latest move was the third 1/4 percent rate increase of 2017, and should be its last as this was the final scheduled Federal Open Market Committee meeting of the year. The 3/4 percent total increase in short-term rates this year pushed the Fed's short-term rate target to between 1 1/4 percent and 1 1/2 percent.

The overall scope of rate moves in 2017 is milder than some expected coming. Coming into the year, the Fed was talking about a policy of normalization - i.e., moving monetary policy back toward more normal standards. Also, for the most part, job growth has continued to hum along steadily, as it had done for the previous few years. However, a persistent sticking point for the Fed has been inflation, as below-target inflation has often been used by the Fed as an explanation for going slow on rate increases.

Two percent has long been the Fed's inflation target, but some language in the latest Fed statement suggests that they may be easing their insistence on that target. The Fed noted that it was raising rates even though the inflation rate has not only been below target but has actually declined this year. This is despite the fact that it expected inflation to run below its target in the near term.

Speaking of looking for subtle signals in the Fed statement, it was interesting to note that Jerome Powell, the Open Market Committee member who has been nominated to take over from Janet Yellen as chair of the committee, was one of six members voting along with Yellen to raise rates, against two who voted to leave rates unchanged.

Some banks were already ahead of the Fed in raising bank rates

For consumers, changes to bank rates had begun to show up in the marketplace long before this Fed meeting. For example, the average rate being charged on credit card balances had already jumped by over 1 percent in the 12 months ending in August (the most recent update available). Credit card customers - and especially those who regularly carry balances on their cards - might do well to check on how fast their current card rates are rising and shop around for lower rates.

On the positive side, the latest America's Best Rates survey by MoneyRates showed that average savings account rates crept up for the second consecutive quarter. Better yet, a handful of banks have broken away from the pack and are making more rapid rate increases. This gives deposit customers who shop around a chance to raise the interest rates they earn at a faster pace than the gradual increases in Fed rates.

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