How Yesterday’s Fed Announcements Affect You

The Federal Reserve announced plans yesterday to employ several new and ongoing strategies designed to keep interest rates low and stable for at least the next few months.

We predict that the Fed’s commitment alone to spend up to another $750 billion on Fannie and Freddie mortgage-backed securities could help keep conforming rates stable through year’s end.

The Washington Post posed some consumer questions on how yesterday’s announcements will affect consumers:

Q: I’m thinking of refinancing. Will the Fed’s announcement drive interest rates lower?

A: Rates should drop slightly, said Keith Gumbinger, a vice president at HSH Associates. But keep in mind that the Fed’s actions expand on a program it unveiled in late November. That program drove down the average rate on a 30-year, fixed-rate mortgage to the low 5 percent range. Rates have been bouncing around in that narrow range since then. Yesterday’s announcement “suggests the Fed is making an enduring commitment to keep rates that low through the end of this year and possibly into next year,” Gumbinger said. “But it’s not as if tomorrow the average rate will go down to 4 percent with no points.” Points are upfront fees borrowers pay to reduce the rate on the loan. A point is 1 percent of the loan amount.

Q: How will the Federal Reserve’s action affect my credit card interest rate? And will it be easier for me to get a personal or small-business loan?

A: Like adjustable rate mortgages, consumer and small-business lending are unlikely to be affected. Interest rates for these loans are generally pegged to the prime interest rate — which is already near zero — rather than the long-term Treasury bonds that the Fed yesterday said it would buy. Instead, the Fed is in the midst of launching a $200 billion Term Asset-Backed Loan Facility, or TALF, that it hopes will provide relief to consumers when it is fully operational.

Click here to read the Washington Post’s complete set of questions and answers.