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How U.S. Federal Reserve historic Fed interest rate cut affects you ?
By Amarendra Bhushan for CEOWORLD Magazine Updated:December 17, 2008
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U.S. Federal Reserve policymakers dropped a key interest rate to the lowest level in history, policymakers lowered the federal funds rate from 1 percent to a target range of 0 percent to 0.25 percent. The decision signals that Fed Chief Ben Bernanke is more concerned with the rapidly deteriorating economy–which has been mired in a recession.
I would rather say Fed has already cut the federal funds rate to 1 percent and is likely to take it all the way to zero in a matter of weeks. Even if it doesn’t bring rates all the way to zero, it’s not about to push rates higher anytime soon.
Its pretty obvious, the economy is bad and the U.S. Federal Reserve policymakers are deeply concerned that it could get worse. What the Fed is doing, in simple terms, is making it exceedingly cheap to borrow money.
So, How U.S. Federal Reserve historic interest rate cut affects you ?
Here’s how the Fed’s actions affect you:
- Action could help those with home equity lines of credit.
- Indirectly, give relief to homeowners whose adjustable-rate mortgages are poised to reset.
- Make lending profitable and attractive to banks.
- Fed rate cut’s big winner is banks.
- Any change in the rate has little to do with long-term mortgage rates.
- reduce banks’ cost of funding.
- widen profit to the banks margins and pass along savings to consumers in the form of lower interest rates.
- Individuals to start taking more risks with their own cash.
- Cheaper money makes it easier to buy a house, for example.
- Lower interest rates also make government bonds less attractive as investments which could result people to invest in riskier assets like stocks…
- individuals can look for refinancing a mortgage with lower rates.
- If you haven’t refinanced in a long time, you could save a lot of money on monthly payments.
- You could use that extra cash to pay down more expensive debt, especially credit card debt.
-
Will the Fed’s strategy work?
With such a low interest rates and trillions of government dollars at the economy, inflation could return with a
vengeance once the economy recovers.
How to avoid it?
- Invest in Treasury Inflation Protected Securities (TIPS)
- invest some of your assets in commodities, either through an ETF or a mutual fund.
- Last but not least consider again real estate. But make sure your real estate investment is primarily for living and shelter, not for speculation.
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Interest Rates » How U.S. Federal Reserve historic Fed interest rate cut affects … on Wed, 17th Dec 2008 6:11 am
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