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Rate hike effect on borrowers likely minimal


Jerry Host


The Federal Reserve’s much anticipated interest rate hike is not going to have significant impact on most people, and whether rates will continue to rise depends on the economy showing continued signs of improvement.

That’s the long-story-short view of Jerry Host, president and CEO of Jackson-based Trustmark National Bank, which has more than 200 locations in the Southeast. Host also is a director of the Federal Reserve Bank of Atlanta and said his comments to Mississippi Business Journal were his own and not necessarily those of the Federal Reserve.

Host said the Fed’s decision last month to raise short-term interest rates 0.25 percent will be felt by consumers and businesses with loans tied to the prime rate, which increased from 3.25 percent to 3.5 percent with the Fed’s hike in the discount rate.

“Those who have home equity lines of credit that are tied to the prime rate will see a quarter percent increase on their loan,” said Host.

Other consumer loans that will be affected by the rate increase are loans on cars, ATVs and boats. Borrowers could see the adjustment at the end of the month, the quarter or whenever their floating rate changes.

And even though the rate increase won’t affect longer term mortgages, the media attention it attracted prompted many consumers to go ahead and lock in their mortgage rates.

In the few weeks since the rate announcement, Host said Trustmark’s mortgage offices have seen the volume of mortgages increase as consumers who were sitting on the fence about buying a home or refinancing decided to act.

Paul Guichet, vice president of business development at The Peoples Bank in Biloxi, said the rate increase will impact the banking industry’s bottom line over time. “An interest increase should improve banks’ overall financial health by improving their margins, essentially what banks earn from interest on loans versus what banks pay to customers with interest bearing accounts,” he said.

Host said the Federal Reserve is mandated to ensure the inflation rate stays within targeted levels and to maintain a manageable level of unemployment.

“The bottom line is people have gone back to work after the recession and the unemployment rate has dropped substantially since the beginning of the recession and inflation is still less than the 2 percent target level,” Host said.

Concerned that inflation could start to rise again as the economy begins to come back slowly, Fed members raised rates after putting off an increase for seven years.

What happens next with interest rates depends on the global economy.

Guichet said China’s stumbling economy “has a notable ripple effect on other economies, primarily emerging foreign markets.” He also said oil continues to be in the doldrums. “Lower oil prices present fundamental concerns for financial markets and overall economic growth,” he said.

Host said a number of economists are projecting that the Fed will more than likely continue to increase interest rates during 2016.

“I think that we could see a quarter of a percent each quarter throughout 2016. That would be considered in most economic recoveries a very slow rate of increase in interest rates,” he said.

The Fed is constantly evaluating various economic indices and adjusting their strategy accordingly, Host said.

“We all want the economy to continue to get better and people to continue to find job opportunities,” he said.

“We certainly would like to see a nice slow steady increase in overall economy growth within the country. It’s just good for everybody.”


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