Some Effects of the Federal Reserve Bank Keeping Interest Rates Low for a Prolonged Period
- Author: Chris Remington
- Posted: 2024-06-15
Fed Chair Jerome Powell announced this week that interest rates will remain at or near zero for years as the Fed tries to stimulate the economy from the pandemic induced problems. Low interest rates have a number of impacts on your own personal financial situation. All of these effects are good as they will put money in your pocket. Higher interest rates are a drain on the consumer, and you will not need to worry about them for a long time to come.
Balance Transfer Credit Cards
With interest rates being so low, it is easier to get credit cards with zero interest rates or very low balance transfer rates. You can take advantage of these rates for an introductory period while you make a dent in your credit card debt. The number of credit card issuers willing to make this offer will be higher with lower interest rates. Moreover, they may be willing to extend the introductory period for a longer amount of time. Even if you are not able to get a 0% credit card, the interest rate that you are paying right now will drop since it is tied to the prime interest rate. If you owe money, this will put some extra in your pocket.
Buying Cars Is Advantageous
When interest rates stay low because of a sluggish economy, you get the best of both worlds when buying a car. First, the dealer needs to move the cars off the lot when the consumer economy is not healthy. As a result, they will cut car prices to rock bottom, so they do not get stuck with excess inventory. Not only do you get a solid deal on the car itself, but the low interest rates also mean that your monthly payment is low. If you need to buy a car, as long as the Fed has interest rates so low, it is the perfect time to do so.
Your Variable Rate Loans Will Work Out Great
If you have an adjustable rate mortgage, you are at risk if interest rates go up in the future. Powell's announcement gives hope to people who were worried that their interest rates may not stay low in the future. You can plan on having relatively low monthly payments on things like your mortgage and student loans if you have variable rates. Of course, you will have time to shop around for a low fixed-rate loan if you have the ability to refinance and roll your loan into a fixed-rate product. However, you can look forward to enjoying the extra money in your pocket that low interest rate variable loan gives you. Another financial product that you have which will benefit from these extended lower interest rates is a Home Equity Line of Credit. Rates have dropped sharply since the start of the pandemic, falling over 1%. This is extra money for you.
You Have Time to Shop for a Long-Term Fixed Rate Loan
If you have not already refinanced, you can take your time to find the best deal for you knowing that rates will continue to stay low. You have to worry less about the market getting away from you when you are pricing out different loan products. You may find it advantageous to move from a variable rate loan to a fixed-rate product so you are not at risk for the time when interest rates finally do increase. Take the time to read the fine print on each of these products as opposed to feeling rushed into accepting the first refinancing that you get because you are worried about rates going up higher.
The Fed Will Force Your Savings Into the Market
Besides your emergency fund, there is little incentive for you to have money in savings. The low interest rates will force you to move your money out of your savings account where it is actually earning a negative return. This may help you keep as much money as possible in the markets where it is earning a better return. Of course, you need to make sure that you keep enough money handy to maintain your liquidity in case you need it. Investing more may be a positive thing if you do not yet have the assets necessary to execute your financial plan.
