Federal Reserve
Posted 04/11/09
When the Federal Reserve recently announced its intention to lower interest rates from 1.5 percent to an unprecedented low of 1 percent the hope was that the U.S. economy would receive a much needed boost in the form of increased consumer spending and a corresponding confidence in the economy following suit. According to the Fed, this and other measures currently being implemented would result in a greatly improved economic climate that will in turn usher in a period of economic advancement.This lowering of interest rates was actually long anticipated by many financial analysts, although most of them were unsure how low the interest rates would go. The federal funds rate was already lowered several times over the past year, with a half point decrease implemented only a few weeks ago. This decrease currently places the interest rate at the same levels as it was in the latter part of 2003 and the beginning of 2004. This stands in sharp contrast to interest rates in the latter part of 2006 and the beginning of 2007, when rates reached as much as 5.25 percent.
Needless to say, borrowers throughout the United States have received news of the lowering of interest rates with much anticipation. The Fed, however, is not actually responsible for setting the rates that are paid on mortgages, car loans, credit cards or other types of debt. Their actions however directly affect the up and down movement of these interest rates. Mortgage rates for instance increase and decrease along with the bank rates of Fed, and are therefore in a better position to benefit from rate cuts implemented by the Fed. What all this means is that people that apply for home equity credit, credit cards, and adjustable rate mortgages or ARMs stand to greatly benefit from these recent interest rate reductions.
One disadvantage to these decreases is that the interest rates on savings accounts, checking accounts and certificates of deposit will remain low as well. Therefore, it is imperative that consumers compare the rates offered by different banks with regard to these accounts.