Fed Chair Janet Yellen

Federal Reserve Board Chair Janet Yellen.

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The Federal Reserve has chosen to leave short-term interest rates unchanged, setting up a rate increase for the end of the year.

Monetary policymakers on Wednesday kept their benchmark federal funds rate steady within a range of 1 percent to 1.25 percent for at least another six weeks, amid mixed messages on the economy.

The Fed said in a statement that the labor market continues to strengthen and “economic activity has been rising at a solid rate despite hurricane-related disruptions.” But inflation has remained relatively weak, and Americans’ wages haven’t seen much improvement.

The central bank’s decision to hold rates in place amounts to a reprieve if you’ve got a revolving credit card balance, a home equity line of credit or other debt with interest payments based on the prime rate, which tracks the federal funds rate. If you’re a saver, you’ll have to carry on with the post-Great Recession trend of low yields on savings accounts and CDs.

But a rate hike is seen as all but certain the next time policymakers get together.

What the Fed is doing

The closely watched CME Fedwatch tool pegs the probability at 98 percent that we’ll see a quarter-point increase at the mid-December Fed meeting.

Policymakers raised interest rates in December 2015 for the first time in nearly a decade, and waited another year before doing so again.

A hike next month would represent the third of 2017, demonstrating the Fed’s commitment to pushing rates to more historically normal levels.

While gingerly ramping up rates, the central bank is implementing the plan it began last month to unwind an unprecedented $4.5 trillion balance sheet of bonds it bought up to help lift the economy out of the financial crisis.

Don’t expect to see a lot of impact in the short term, but markets and mortgages rates could see turbulence when the bond-paring program really goes into effect over the coming years.

What it all means for the economy

The Fed has two jobs: Maximize employment and keep inflation in check. (To that end, policymakers have set a target on price increases of 2 percent.)

Both goals have proved difficult to execute and murky to evaluate, which has contributed to the Fed’s cautious approach toward increasing interest rates and trimming its balance sheet.

By many metrics, the economy is humming along. The gross domestic product grew at an annual rate of 3 percent over July, August and September, after surging at a 3.1 percent rate in the prior quarter.

The unemployment rate is at a tiny 4.2 percent, and stock market indexes seems to be hitting new all-time highs every other trading day.

Meanwhile, inflation has proved difficult to juice, despite unprecedented actions by the Fed.

“Even with a hurricane-induced increase in gasoline prices, the inflation numbers remain soft,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “The Fed keeps saying inflation is being held down by transitory factors, but at some point temporary is no longer temporary.”

Prices are expect to rise only 1.5 percent this year, according to the Fed’s preferred inflation gauge, and won’t hit the 2 percent goal until 2019. That’s thanks, in large part, to the lack of raises that workers have experienced since the Great Recession. In September average hourly earnings grew 2.9 percent, below pre-recession levels.

What investors should do

Investors, debtors and savers need to pay attention.

The stock market is enjoying one of the longest bull runs of the post-World War II era. One factor that might cause traders to start selling en masse is an overly aggressive Fed that steps on the brakes too hard and thrusts the economy back into recession.

“History tells us that the Federal Reserve tightening cycles can accelerate the ends of business cycles and bull markets,” notes John Lynch, chief investment strategist at LPL Financial.

The Fed has been very transparent in signaling monetary policy, so markets may be able to digest any moves. But if reports are correct and President Donald Trump announces he’s replacing Janet Yellen as Fed chair, that could cause unwanted turbulence.

What savers and debtors should do

You would do well, then, to solidify your cash holdings in money-market accounts if you’re worried about hiccups in stock prices.

Those with credit card debt need to pay attention, too. The average APR on variable-rate credit cards has risen about 1 full percentage point since December 2015, before the Fed started raising rates. The percentage of families with credit card debt, according to the Fed’s most recent Survey of Consumer Finances, rose from 38.9 percent in 2013 to 43.9 percent last year.

With credit card debt hitting new records, you need to look into a balance transfer credit card that will give you time to pay down your balance with a lengthy zero percent interest period.

Thanks to the Fed, it’s going to be even more expensive to hold an IOU.

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