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Fed likely not to raise rates at next meeting By Melissa Wirkus

Amidst all of the bad news about the slowing market, we finally have some good news in terms of interest rates, which are tied to everything from our credit cards to mortgage payments. 
            Most analysts are forecasting that the Federal Reserve will not raise interest rates during its upcoming meeting this Wednesday, September 20, 2006.  This is good news for just about every consumer across America, although we must keep in mind that this is just speculation, and things could turn out differently on Wednesday.
            A September 15, 2006 article by Holden Lewis of Bankrate.com, “Hands-off meeting likely for Fed,” discusses what many experts and analysts are expecting for the next meeting.
            The Federal Reserve, also known as “The Fed,” has been in the news a lot lately because earlier this year it consecutively raised interest rates a whopping 17 times in a row.
            “You probably won't pay a higher rate on your credit cards or home equity line of credit as a result of the Federal Reserve's upcoming meeting. Emphasis on ‘probably.’ Bettors in the marketplace give a roughly 90 percent chance that the Fed's Open Market Committee won't change short-term interest rates Wednesday.”
            “Consumers would welcome a hands-off approach because of the effect on variable-rate credit cards and home equity lines of credit. Those products are tied to the prime rate, which goes up every time the Fed hikes.”
            Now, everyone is assuming that the Fed will not raise rates this time, because they still need time to see the effects of the 17 consecutive hikes from earlier this year.  It usually takes some time for the effects of an interest rate hike to come into play in the economy and on people’s checkbooks.
            “‘With the lags in policy, we haven't yet seen the full effect of our past actions,’ Janet Yellen, president of the Federal Reserve Bank of San Francisco, told a chamber of commerce gathering Tuesday, Sept. 12. ‘These will unfold gradually over time. By pausing, we allowed ourselves more time to observe the data and more time to gauge how much, if any, additional firming is needed to pursue our dual mandate.’”
            Interest rates are a very important topic because they affect just about every sector of our economy, and have a huge effect on consumer spending. The Fed raised interest rates so many times in a row in an effort to combat inflation. But rising rates also slow down job growth and inflation, so it is basically a Catch-22.
            “Eight times a year, or roughly every six weeks, the Open Market Committee meets to set a target for the federal funds rate. That's the rate that member banks charge one another for overnight loans to cover reserves. The federal funds rate, also called the overnight rate, is 5.25 percent.”
            “In the last half of 2003 and the first half of 2004, the federal funds rate stood at a decades-low rate of 1 percent as the Fed stimulated a sluggish economy. At the time, Fed officials worried that there was a small chance that deflation could take hold -- a disastrous state in which overall prices fall, leading to recession and then depression. The deflation danger passed and the Fed raised the federal funds rate 17 times in a row, a quarter of a percentage point at the time.”
            During these rate hikes, people with home equity lines of credit or high-interest credit cards, saw their rates more than double. 
            We can only hope that the speculators will be right, and we can breathe another sigh of relief as they leave the rates where they are at.

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