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Federal Reserve
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 most recent lowering of the interest rate puts it at the same level as it was in late 2003 and early 2004. In contrast, the end of 2006 and the early part of 2007 saw interest rates soar as high as 5.25 percent.
In any case, borrowers all over the country welcome the lowering of interest rates. Take note however, that the Fed does not actually set the level of interest rates for debts such as mortgages, car loans, and credit cards. Nevertheless, its actions do have an effect on how interest rates fluctuate. 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. Recent decreases in interest rates could then mean a subsequent decrease in rates for people that apply for various types of home loans such as home equity credit packages, credit cards and adjustable rate mortgages.
On the downside, lowering of interest rates could result in interest rates remaining low on savings and checking accounts, as well as certificates of deposit. Therefore, it is imperative that consumers compare the rates offered by different banks with regard to these accounts.
