The Federal Reserve recently announced that it is keeping interest rates steady following the Sept 21-22 meeting. This means the federal funds rate will be left at a range of 0 to 0.25%. This follows the Fed’s decision to hold rates near zero until the economy has weathered the effects of the pandemic.
The move was widely anticipated and it comes as the U.S. economy continues to bounce back. Federal Reserve Chairman Jerome Powell said that highly accommodative monetary policy will continue for the foreseeable future. Fed watchers are questioning how much longer the current policy of buying bonds will last. Greg McBride, CFA, Bankrate chief financial analyst, has told the media: “The Fed is inching closer to tapering, the process of slowly – very slowly – dialing back their bond purchases.”
Some Fed watchers are concerned that if the central bank keeps its proverbial foot on the gas for too long through low rates and bond purchase, inflation could be an inevitable result. For those interested in a net-30 account, it may be prudent to keep a close eye on what the Fed decides to do in the coming year. However, when it comes to all things business prospective entrepreneurs will find trusted online resources, such as The Really Great Information Company, to be a veritable treasure trove of business knowledge.
For now, the Fed continues to sit tight on rates, as we take a closer look at some of the areas it influences.
Table of Contents
Stock Investors
The Fed’s policy of open-ended buying of bonds and the willingness to keep rates at near-zero has been a huge boon for the stock market. Low rates are beneficial for stocks, making them appear more like an attractive investment option in comparison to rates on bonds and fixed-income investments. Investors are likely to keep a floor under stocks as long as the Fed keeps rates low and offers unprecedented support for the market. After the initial drop in stocks in the weeks following the emergence of the pandemic in the United States, stocks have rallied hard, with the Standard & Poor’s 500 Index sitting near all-time highs.
The Federal Government
Debtors generally welcome low-interest rates, because they’ll owe lower payments. According to DataLab, the federal government had $26.95 trillion in federal debt by the end of 2020. The prospect of low rates remains a spur to refinance outstanding debt at lower rates, which could provide an opportunity to save potentially billions of dollars as the government rolls over its debt.
Credit Cards
Many variable-rate credit cards change the rate they charge customers based on the prime rate. This rate is closely related to the federal funds rate. The Fed’s decision could mean that interest on variable-rate cards is likely to remain flat as well. For individuals and businesses who have outstanding balances on their cards, a low rate is welcome news. However, it is important to keep low rates in perspective. Credit card rates are still among the priciest forms of financing available to consumers and small businesses. Still, low rates could be a welcome opportunity to find a new credit card with a lower rate. Bear in mind, low rates on credit cards are largely a non-issue if the individual or business is not running a balance.
Savings Accounts and CDs
Prospective entrepreneurs who are saving up to start a business should be aware that low-interest rates mean banks will offer low returns on their savings and money market accounts. CD rates saw a decline after the Fed lowered rates in early 2020, and it is widely speculated that they’ve never really received. CD owners who locked in rates recently will likely retain those rates for the term of the CD, while those in the market for CD’s may be able to find a relatively attractive deal.
Savings accounts have borne the brunt of lower rates, with most banks quickly ratcheting rates lower following the Fed’s emergency cuts in March 2020. Still, there are a handful of banks that are offering substantially better rates than their peers.
In Conclusion
With blocked supply chains, the Fed’s patient approach to rates, and eager consumers, inflation has been inching higher. While rates on financial products remain low by historical standards, it may be prudent to make money moves (such as locking in a low-cost mortgage) while the opportunity is available.
