What's ahead after Fed stimulus pullback

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 United States 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:

Economists had expected the Fed's monthly purchases to be cut more than they were.

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 November's 7 percent. Many short-term loans will remain cheap.

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

The Fed's 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.

Here's a look at the likely effects of the Fed's decision:

Loans. Mortgage rates have already risen in anticipation of reduced Fed bond purchases: The average on a 30-year U.S. fixed-rate mortgage has increased a full percentage point this year to 4.47 percent. Analysts say it will likely head higher now.

"Home buyers aren't going to be happy," says Ellen Haberle, an economist at the online real-estate brokerage Redfin. "In the weeks ahead, mortgage rates are likely to reach or exceed 5 percent."

Likewise, an improving economy means stronger sales for businesses, even if they, too, have to pay more for loans. And rates on auto, student, and credit-card loans are unlikely to change much. They are tied more to the short-term rates the Fed is leaving alone.

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

"They're starting from such a low point, it's not going to be nearly enough to make three- and four-year CDs anywhere near compelling," said Greg McBride, senior financial analyst at Bankrate.com.

Banking. Banks earn money from the difference between the short-term rates they pay depositors and the longer-term rates they charge consumers and businesses. The gap reached a five-year low in the middle of this year. But it's likely to widen as longer-term rates rise and short-term rates stay fixed. Bank profits should rise as a result.

Banks will also benefit if an improving economy leads more credit-worthy businesses and consumers to seek loans.

Financial markets. Many Wall Street analysts feared stocks would plummet once the Fed announced a pullback in its bond buying. On Wednesday, the opposite occurred: The Dow rocketed 293 points. Investors appeared to focus more on the good news (the economy is improving) than the bad (the easy-money days may be ending).

The celebration might not last.

"As the tapering continues, there will be less liquidity going into the stock market," and the rally will either slow or end entirely, says Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University.