Does the fed action of cutting interest rate really help you and me? Let us look at some of the effects of fed rate cut.
The actions of fed are going to make credit availability easier for holders of the difficult to trade securities. This will help the stock markets to find some comfort in coming days.
Rates on home-equity lines of credit, credit cards and auto loans have all dropped. In addition, many of homeowners won’t face higher rates as their adjustable-rate mortgages are reset. But for new-home buyers and those looking to refinance their mortgage, the Fed’s rate-cutting campaign has provided little relief.
Stock Markets:
The Federal Reserves' actions in helping the sale of ailing brokerage Bear Stearns will help all Americans by stabilizing capital markets. This action of the Fed will bring some liquidity and orderliness in the stock markets.
In a deal brokered on Sunday through the Fed and the Treasury, Bear Stearns was sold to J.P. Morgan Chase & Co for a bargain price of $236 million. The Fed will be lending banks highly liquid Treasury securities in exchange for less liquid assets. Banks will now be able to use a wider range of collateral than previously announced. The first auction will take place on March 27 with an offering size of $75 billion for a term of 28 days. These actions should ease the liquidity crunch in the stock markets and offer some stability for the time being.
Home Loans:
Rates on home-equity lines of credit have dropped to 6.27% from 8.25% since September of last year. Rates on home-equity lines of credit should fall further after the Fed’s latest cuts, but that might have less effect than would ordinarily be expected, as some banks make these loans harder to get.
Credit card rates:
When it comes to credit cards, average rates on variable-rate cards have fallen to 12.36% from 13.97% last fall. But for some cardholders, yesterday’s Fed rate cut may not have as much impact as previous rate cuts because of the presence of so-called floor rates, or predetermined points below which rates won’t fall, no matter how low interest rates go.
New car loans:
A rate cut isn’t likely to have a big effect on new-car loans, in part because many auto loans are already offered at reduced rates because of heavy manufacturer incentives. Average rates on five-year new-car loans have dropped to 7.22% from 7.72% in early September. Nevertheless, lower interest rates will help make it less costly for auto makers and lenders to offer lower-cost loans and more-attractive leasing deals. Already, car makers are sweetening their financing rates, rebates and lease deals on a wider range of models than usual. |
