Taper talk

A look at the likely effects of the Fed's decision:

Loans: Mortgage rates have already risen. Analysts say they'll likely head higher. Still, that won't likely reverse the housing recovery. As the job market strengthens and consumers gain more confident, demand for homes could offset higher mortgage rates.

Likewise, an improving economy means stronger sales for businesses, even if they're paying more to borrow.

Savers: Savers have suffered from the low-interest rate policy. Wednesday's move could offer some relief to people who keep money in 3- and 4-year CDs. But it probably won't mean a big jump from, say, the average 0.48 percent rate on 3-year CDs.

Banks: Banks earn money from the difference between the short-term rates they pay depositors and longer-term rates they charge borrowers. The gap hit a 5-year low this year. But it's likely to widen now, and profits should rise.

Stocks: The Fed intended its bond purchases, in part, to push bond yields so low that investors would move into stocks. Since November 2012, the Dow has surged 28%.

Many analysts feared stocks would plummet once the Fed started tapering. The opposite occurred: They skyrocketed Wednesday, as investors appeared to focus more on the good news (an improving economy) than the bad (the easy-money may be gone).

The celebration might not last as the Fed tapering continues and less money heads into stocks, said Sung Won Sohn, an economics professor at California State University.

Source: AP

WASHINGTON - Consumers will likely pay more for home loans. Savers may earn a few more dollars on CDs and Treasurys. Banks could profit. Investors may get squeezed.

The Federal Reserve's move Wednesday to slow its stimulus will ripple through the global economy. But exactly how it will affect people and businesses depends on who you are.

The drop in the Fed's monthly bond purchases from $85 billion to $75 billion is expected to lead to higher long-term borrowing rates. Which means loan rates could tick up, though no one knows by how much.

The move could also weigh on stock markets from the U.S. to Asia, even though the early response from investors was surprisingly positive.

Just keep in mind: The impact of the Fed's action is hard to predict. It will be blunted by these factors:

It's a very slight reduction. Economists had expected the Fed's monthly purchases to be cut more than they were.

Even though it will buy slightly fewer bonds, the Fed expects to keep its key short-term rate at a record low "well past" the time unemployment dips below 6.5 percent from today's 7 percent. Many short-term loans will remain cheap. "They have tried to sugarcoat the pill," says Joseph Gagnon, senior fellow at the Peterson Institute for International Economics.

The Fed thinks the economy is finally improving consistently. An economy that can sustain its strength can withstand higher borrowing rates.

All of which suggests that while Wednesday's action marked the beginning of the end of ultra-low interest rates, the pain may not be very severe.

The bond purchases, begun in the fall of 2012, were meant to stimulate the economy. The purchases were designed to lower mortgage and other loan rates, lead investors to shift out of low-yielding bonds and into stocks and prod consumers and businesses to borrow and spend.

Josh Boak of the AP contributed to this report.