Originally published July 11 2005
Federal interest rate hike will affect different parts of the economy in different ways
by Mike Adams, the Health Ranger, NaturalNews Editor
Credit cards, loans and mortgages are going to be affected by the recent Federal interest rate increase, but Federal Reserve policymakers say the economy is tough enough to take it, even in the face of rising energy prices, reports MSN Money.
Here's how you can expect credit cards, car loans and mortgages to react.
Chairman Alan Greenspan and his colleagues raised the federal funds rate by one-quarter percentage point to 3.25% on Thursday.
The action represented the ninth increase of that size since the central bank began to tighten credit in June 2004.
In response, commercial banks began lifting their prime lending rates, which are used for many short-term consumer loans, by a corresponding amount to 6.25%.
No worries about oil, inflation From the Fed's standpoint, high energy prices -- for now -- don't seem to be posing a threat to the economy that would change the monetary strategy, analysts said.
Fixed mortgage rates and long-term bond yields have reversed an increase that was seen in February and March and are close to the lowest levels of the year.
For borrowers facing rate adjustments, the relevant comparison is the current level of the underlying index, plus the loan's margin, vs. the initial start rate.
For these loans, locking in rates sooner, rather than later, will insulate borrowers from higher rates.
But most borrowers taking home equity loans are borrowing a significant amount of money and repaying it over a 10- or 15-year period.
Credit cards: Variable-rate credit cards typically move in direct response to Fed interest rate action, as most are tied to the prime rate.
However, there can be a lag of up to three months between an interest rate hike and a credit card repricing, as issuers reprice their cards on a monthly or quarterly basis.
Since the last Fed interest-rate increase on May 3, the average standard variable-rate card has climbed from 13.16% to 13.4% and the average variable-rate card among the standard, gold and platinum classes has surged from 11.87% to 12.16%.
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