Low Interest Rates Might Hurt More Than Help
WASHINGTON ( TheStreet) -- Federal Reserve policymakers last week held the overnight lending rate near zero to keep the economic recovery on track by making credit easier to access. But the benefits of a low rate might be diminishing for consumers.
Because nearly 70% of credit cards sport variable interest rates, one might think that the Fed's decision to stick to a near-zero strategy would be a boon for many Americans. Instead, in a scramble to beat new consumer protection regulations that go into effect on Feb. 22, card issuers have been raising rates, boosting fees and decreasing credit lines. Many credit lines also have baselines built into their products. Read the fine print and you may find that your card won't fall below 15%.
On the surface, the Fed's policy would also seem beneficial for new-car buyers. But those dealers offering attractive loan terms may be doing so to help sell slow-moving vehicles, irrespective of monetary policy. The fed funds rate impacts used-car loans even less. Used-car loans are more likely to reflect supply and demand, and default trends, which are tied to unemployment. Buyers will bad credit will continue to pay high rates.
"From a consumer standpoint, a marginal increase in interest rates will probably not have a material impact on the way people spend or save," says Srini Venkateswaran a partner with the financial institutions group at consultancy
A.T. Kearney. "But I also don't believe
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV