Fed vows to keep interest rate low
By Jeannine Aversa |
November 6, 2009, Friday
|
Print Edition
Print Edition
THE Federal Reserve pledged on Wednesday to keep a key interest rate at a record low for an "extended period," signaling that the weak economy remains dependent on government help to grow.
The Fed said economic activity has "continued to pick up" and that the housing market has strengthened - a key ingredient for a sustained recovery.
But Fed Chairman Ben Bernanke and his colleagues warned that rising joblessness and tight credit for many people and companies could restrain the rebound in the months ahead. "Economic activity is likely to remain weak for a time," they said.
Against that backdrop, the Fed kept the target range for its bank lending rate at 0 to 0.25 percent. And it made no major changes to a program to help drive down mortgage rates.
Commercial banks' prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25 percent, the lowest in decades.
Credit cards rise
Still, some credit card rates have risen in the past several months. In part, that reflects rate increases by lenders in response to escalating defaults on credit card loans.
Lenders also pushed through increases before a new law clamping down on sudden rate hikes for credit card customers takes effect early next year.
On Capitol Hill, the House voted on Wednesday to accelerate the enactment date of the new rules to protect consumers from many such surprise changes. Credit card companies would have to comply immediately, rather than starting in February, unless they agreed to freeze interest rates and fees. But the proposal's chances in the Senate are considered dim.
The average rate nationwide on a variable-rate credit card is 11.5 percent, according to Bankrate.com.
Lenders charge more and credit card customers pay rates higher than the prime because the debt they run up is riskier.
On Wall Street, the Dow Jones industrial average at first held onto an increase of more than 100 points after the Fed's announcement. But stocks eventually gave up most of their gains in a late-day slump. It wasn't clear how much was due to the Fed's statement. Some analysts said investors are nervous because the October jobs report is scheduled for release today.
The Fed said economic activity has "continued to pick up" and that the housing market has strengthened - a key ingredient for a sustained recovery.
But Fed Chairman Ben Bernanke and his colleagues warned that rising joblessness and tight credit for many people and companies could restrain the rebound in the months ahead. "Economic activity is likely to remain weak for a time," they said.
Against that backdrop, the Fed kept the target range for its bank lending rate at 0 to 0.25 percent. And it made no major changes to a program to help drive down mortgage rates.
Commercial banks' prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25 percent, the lowest in decades.
Credit cards rise
Still, some credit card rates have risen in the past several months. In part, that reflects rate increases by lenders in response to escalating defaults on credit card loans.
Lenders also pushed through increases before a new law clamping down on sudden rate hikes for credit card customers takes effect early next year.
On Capitol Hill, the House voted on Wednesday to accelerate the enactment date of the new rules to protect consumers from many such surprise changes. Credit card companies would have to comply immediately, rather than starting in February, unless they agreed to freeze interest rates and fees. But the proposal's chances in the Senate are considered dim.
The average rate nationwide on a variable-rate credit card is 11.5 percent, according to Bankrate.com.
Lenders charge more and credit card customers pay rates higher than the prime because the debt they run up is riskier.
On Wall Street, the Dow Jones industrial average at first held onto an increase of more than 100 points after the Fed's announcement. But stocks eventually gave up most of their gains in a late-day slump. It wasn't clear how much was due to the Fed's statement. Some analysts said investors are nervous because the October jobs report is scheduled for release today.
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