The Fed drops short term rate, pants
The US Federal Reserve is panicking. They’re in full-blown panic mode, and their latest rate cut proves it. Rather than holding the federal funds rates steady, or cutting it by a quarter point, they went all-out with a .75% rate cut. The new short-term interest rate is 3.5% - the lowest it’s been August of 2005. The real kicker about this rate drop was that it wasn’t expected - it was done outside the Fed’s normal meetings. The Fed is scheduled to meet again next week, and may drop the rate even further.
Why should you care?
I know some of you are thinking, why in the world do I care what the Fed does with their fancy interest rates? A good llama always pays attention to the Fed’s rate changes, because they’re extremely important. In the case of the federal funds rate, this rate affects things like adjustable rate mortgages, home equity loans / lines of credit ( HELOC ), credit cards, and auto loans. It also affects savings account rates. So whether you’re paying off debt or building a savings account, you will be affected.
For those of us who are sitting under a pile of debt, congratulations! Your adjustable rates will drop soon, and the pressure will ease slightly. If you’re going to be in the market for a car soon, then give it a couple weeks. Banks need a bit of time to adjust their rates downward, which most will.
All the savers out there, I’m sorry. The rate you earn on your online savings accounts will be dropping very soon. Unless you have a huge amount of money in savings, then you won’t see a massive change in interest income. Any money lost is significant though, and a direct result of the rate drop.
Why did the Fed do this?
They’re trying to stimulate the economy in any way they can right now. Many consumers have severe debt issues ( don’t be ashamed, many of us are there or have been there ), and need some help. Folks who are better off may be more tempted to make purchases on credit ( cars, HELOC, plasma TV’s, whatever ), which will help the economy of course. Rate cuts also tend to have a positive effect on the stock market, which has been in the tank lately. If you’re financially well off, please try to use your head. Lower rates are great, but 0 is best. If you don’t need it and can’t readily afford it, then sit it out. Pass on credit purchases as much as you can, and enjoy your financial freedom.
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January 23rd, 2008 at 8:46 pm
BEST. TITLE. EVER. I am still giggling.
I can’t believe the things that will be suggested to try to lead to a stimulation of the economy (I still recall with some bemusement last year’s suggestion from the White House that Americans should spend-spend-spend to boost the economy!).
I think that the best insurance for good and sound fiscal practice is to follow the advice at the end of this post… pass on credit as much as you can, and work toward (and enjoy) financial freedom!
Jerry
http://www.leads4insurance.com
January 25th, 2008 at 9:46 am
Exactly. Some so-called expert ( don’t remember his name ) even said that lower-inome, financially unsound families will be far more likely to spend their entire rebate, while families with their financial house in order will be more likely to bank it. That’s why they’re talking about capping the rebate so folks with very high incomes won’t get a rebate.
January 29th, 2008 at 3:58 pm
[...] the Fed dropped the federal funds rate, they guaranteed that folks who have high yield online savings accounts would take a beating. [...]
January 30th, 2008 at 2:30 pm
[...] last weeks’ unexpected .75% rate cut, you had to figure that the Fed was done playing for awhile. Not so. Today, at their [...]