Summary: Whenever the Federal Reserve raises or lowers interest rates, those changes affect the loans that consumers have that are tied to those rates. Interest rate changes affect mortgage loan rates, credit card interest rates and the rates that government bonds pay. Learn how the Federal Reserve may lower interest rates to try to boost the economy.
WGN-TV Show Notes -- August 21, 2001
ANCHOR: Later today, Federal Reserve Chairman Alan Greenspan will announce whether he will keep the federal funds rate where it is, or lower it. Unfortunately for consumers, this may be a lose-lose proposition.
ANCHOR: Our money and real estate expert Ilyce Glink explains why you may not benefit if Greenspan lowers interest rates even by a half a point.
Good morning
ILYCE: Since January, Alan Greenspan has lowered the federal funds rate a half dozen times. Typically, the economy responds to the lowering of interest rates in about six months. Which is why everyone in January kept saying we'd see signs of a recovery in the second half of the year. But guess what? It's now nearly September, and instead of picking up steam, the economy has continued to stall. Every day when you open up the paper, there is news of a new round of layoffs.
ILYCE: This week, Ford announced it was laying off 5,000 people. We’ve seen Motorola layoff tens of thousands. And if you add up all the people Lucent will lay off over the past 12 months, it adds up to 100,000 jobs. While the unemployment rate is still low, it is going up. Privately and publicly, economists are saying the manufacturing sector is in a recession, and we all know retail hasn't done well except for discount stores in a number of quarters.
ILYCE: All this negative news is pushing Alan Greenspan to lower interest rates again. But that isn't necessarily good news for consumers. Take a look.
Rate Drop Isn’t Great News For:
Seniors – Bonds called, income drops
Credit card debt – at the floor/not going lower
Mortgage rates – will rise if rates are dropped
ILYCE: Who does win? The only people who might win are those who have home equity loans or home equity lines of credit that are tied directly to the prime interest rate. Why? Because when the federal funds rate goes down, it has a direct impact on the prime rate -- the rate banks charge their best customers -- and to a lesser extent short-term mortgages, like the 1-year adjustable rate mortgage.
ANCHOR: So you think mortgage interest rates are going to go up if Greenspan lowers the Federal Funds rate?
ANCHORS: ????
Aug. 21, 2001.
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