Trick or Treating with Bernanke

Update: It's official!  The Fed rate is now at 4.5% after a not-unanimous vote.

The Federal Reserve board is meeting today and assessing the state of the economy. Many economists and fed-watchers expect Ben Bernanke to announce another rate cut this afternoon. The last rate cut, on September 18, was a half a percent drop to 4.75%. The change was intended to "promote the restoration of orderly conditions in financial markets."

Six weeks later and the market is still looking shaky and the credit crunch hasn't gone away. Investors are really pushing for the rate to drop another quarter percent, to 4.5%, this afternoon. Stocks have already jumped in anticipation of this rate change.

What will another rate drop mean to you?

• Slightly lower credit card rates - Most credit card APR's are tied directly to the prime rate, which is impacted by Fed Rate. You might see a .25% drop in your credit card rate, although it's unlike to have an impact on other credit card trends such as lowered credit limits and aggressive marketing.
• Slightly lower home equity & auto loan rates - Only a quarter of a percent, but it can help if you're trying to get a good deal on a loan.
• Mortgage rates - Expect some instability here. After the September rate cut, mortgage rates actually spiked and have just now settled down again.
• Savings rates - It's a pretty good time to have a high-yield savings account. The rates aren't rising that fast, but they're decently high.   
• Inflation - It's a real possibility but being very closely watched.
• Stocks - The stock market is loving these rate decreases and will probably have a very good day after the announcement is made.

We'll keep you posted as the announcement comes in at 2:15 PST. In the meantime: what would you do if you were Bernanke? Cut the rates? Leave them alone?

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

Comments

[Confused]

I agree with most points above save one - Higher HYS rates. A cut in the Federal funds rate is generally inversely proportional to the yield that consumers see in "real life" - just because a bank gets a rate cut does not mean that it is passed along to consumers in form of higher interest rate yields. To the contrary - check your ING, AMBOY, ED, GMAC accounts now versus pre-FMOC rate-cuts in wake of the so-called credit crunch or mortgage mess - (pick your poison) and you'll see what I am talking about.

[Emily Davidson]

Yep, the HYS's move a little slower. There has been some increase in APY's, but it's been pretty minor. My high yield savings account rate has increased but maybe it's the exception.

[Confused]

>In the meantime: what would you do if you were Bernanke? Cut the rates? Leave them alone?

Leave them be! for goodness sake! What is it about the free market that Bernanke and the board of governers fail to understand!?

You can't pull strings and make the poor decisions of hedge fund managers who wagered against hope that housing prices would stabilize or continue approach infinity just go away. They gambled - they lost - period. Fed - hands-off.

All this talk about rescuing the poor ARM borrower that 'knew no better' makes for good news stories during dinner time but it's just window-dressing over the real story - no one is likely to be as sympatehtic to the plight of the mega-banks so they show Suzy Homemaker getting her stuff towed away in to make us feel sad about the mortgage mess (and buy whatever drug du jour that happens to be advertised on the nightly news) - oh, sorry (rant off) - I think they should not cut... although, my stocks sure look great when they do -

Here's a question for your readers - since most poor folks don't know steak from sizzle when it comes to stocks - how is this rate cut really going to help the average consumer?