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From Holden Lewis @www.bankrate.com:
“The Federal Reserve raised a key short-term interest rate today, reassuring investors that major combat operations against inflation are not over.
The Fed’s Open Market Committee increased the target for the federal funds rate a quarter point, to 2.5 percent. The prime rate will rise to 5.5 percent. Consumer loans based on the prime rate—variable-rate credit cards and home equity lines of credit, for the most part—can be expected to rise in the coming days and weeks.
Short-term rates have gone up 1.5 percentage points since the end of June. In that time, the Fed’s rate-setting committee has met six times, and each time it raised the federal funds rate by a quarter of a percentage point. In today’s after-meeting statement, the committee hinted that more rate increases are in store.”
What does this mean to you in a nutshell?
- Credit Cards:
Credit cards with variable rates will raise their rates.
Note: Folks with credit problems will be seeing higher interest rates! - Money market mutual funds:
Yields will increase. - Money market accounts:
Banks may reward depositors...but don’t count on it. - Certificates of deposit:
Yields on CDs may vary depending on the length of maturity - Auto loans:
Not affected - Home equity lines of credit:
A modest increase in the early years of a HELOC - Home equity loans:
Long term rates will not be affected - Adjustable-rate mortgages:
Interest payments could definitely increase - Fixed-rate mortgages:
Tied to long term rates, should not be affected
source: http://www.bankrate.com/nltrack/news/fed/how-soon.asp
The Federal Reserve Board cut the short-term interest rate one quarter of a percent to 4.5 percent. The prime rate will drop to 7.5 percent.
Don’t expect yields on CDs (especially short term CDs) to fall or for fixed-rate mortgage rates to fall, this time. After the previous half a percentage cut in September, neither reacted as expected.
In doing so, the Feds stated that while economic growth from July through September was solid, they expected it to slow, partly reflecting the “intensification” of the housing market correcting itself, that inflation is still a risk, due to rising energy and commodity prices, and that the risks of inflation and economic slowdown are “roughly” in balance.
A further translation of What the Fed Said.
Per Bankrate:
If you have an adjustable-rate mortgage, the Fed’s decision to cut interest rates by 25 basis points will likely cause your monthly mortgage payment to dip at your next reset. Rates on new fixed-rate mortgages also may dip, but that’s much less certain.
Bankrate suggests tuning “out the talking heads on financial news programs and instead ask a simple question: The Fed just did ‘X’ - what did the bond market do? In particular, keep an eye on the 10-year Treasury rate. If that falls, mortgage rates will fall.”
Every three years, the Federal Reserve Board conducts a survey on finances of U.S. families. The survey includes information on income, assets, net worth, pensions, etc. Being curious, I decided to see what the last survey had to say. What exactly ~is~ the status of U.S. families? How are they faring?
First, for those who don’t know or have forgotten, let’s cover what is meant by “mean” and “median”. “Mean” is an average, while “median” means the middle.
You have a list of numbers: 1,2,3,4,5,6,7. The mean (or average) would be: 4. The median is: 4.
But suppose you replaced the 7 with 29: 1,2,3,4,5,6,29. The mean (or average) would be: 7. The median is still: 4.
What does this show?
Consider you have 10 people in the room. The mean (average) income for those 10 people is $50,000 per year. The median income is also $50,000 per year. Suppose one of those people is replaced by Bill Gates. The median income remains $50,000 per year, but the mean income goes to $50 million. You could now say that the average income is $50 million per year, but how accurate is that? The deviation between the median and mean give you a better glimpse of the ~reality~ of things.
The 2004 “Recent Changes in U.S. Family Finances” Summary shows:
- Family income during the 2001-2004 period
- - Median increase 1.6 percent
- - Mean decrease 2.3 percent
- Family net worth during the 2001-2004 period
- - Median increase 1.5 percent
- - Mean increase 6.3 percent
- Median wealth declined for families in the bottom 40 percent of the income distribution and rose for those higher in the distribution
- Mean wealth stayed about the same for all income groups
In the three years after the 2001 survey, interest rates moved generally lower; indexes of equity market performance trended generally downward over the early part of the period but made up the losses with gains in 2004; and residential real estate appreciated strongly.
However…
The overall share of financial assets in families’ portfolios… declined despite substantial gains in holdings for some groups. Of particular note, the share of families that held stocks either directly or indirectly through an account type retirement plan or another type of managed asset account fell to about 49 percent in 2004 after having reached an SCF high of almost 52 percent in 2001.
This decline is explained due to the rise in non-financial assets; strictly, real estate. Homeownership went up by 1.4 percent, while ownership for other residential real estate (2nd homes, investment properties) went up by 1.2 percent. So basically, people transferred their financial assets over to real estate (home ownership). It will be curious to see what happens in the 2007 Survey, seeing that we’ve had such a problem with the housing market recently.
To further underscore this point, the proportion of families assets offset by debt rose from about 12 percent in 2001 to 15 percent in 2004. Banks own alot of homes :| And sadly, we’re seeing a huge climb in the number of foreclosures (See Homes Facing Foreclosure Doubles).
Hand in hand with this, the 2004 period also saw a rise in the proportion of families that had been delinquent with their debt payments, along with an increase in the median ratio of loan payments to family income.
Again, I’ll be very curious to see where we stand in the 2007 survey. From the 2004, it would appear that the adage, “the rich get richer, while the poor get poorer” does indeed apply.
i have a pet peeve with banks. while i sincerely appreciate the fraud prevention that many have implemented, i find it disturbing to be called at home by someone purporting to be from my bank, who asks me about my accounts and charges on those accounts. my normal reaction is to give them absolutely no information and to request a name and phone number from them. then i call the bank’s main number and tell them who i was contacted by. if it’s a valid call, they’ll transfer me to the correct department. it may seem somewhat paranoid, but with identity theft a very real issue, it’s the safest way.
this morning, i received a call from “tonya” at “imagine mastercard”. she stated she was with the “fraud dept” and that they were trying to locate *me* to verify that i had opened an account with them in oct-2007. when i wasn’t forthcoming with information, because i didn’t trust the phone call, she tried pumping me for information, “have you lived in missouri?” no, never been in missouri. i continued to remain skeptical of the phone call and, since i wasn’t a willing victim, she ended the call with, “i suggest you check your credit reports, as several accounts were opened using your information.”
well. she’s right. i checked my credit report and i’ve had accounts opened using my information… by me. none in october of 2007. no entries showing ‘imagine mastercard’ or it’s 1st bank of delaware. no suspicious activity at all.
looking up “imagine mastercard”, i see that they’re a “bad credit, no problem” credit card company. i called them directly and, as i expected, they required my ssn to be able to verify whether they had actually called or not. since they do not show on my credit report and since i’ve never opened an account with them, i refused to give them that information.
i’m unsure what the actual purpose of the call was, but based on the behaviour of the woman who called me and their company representatives that i spoke with later, i believe something fraudulent was afoot. two scenarios immediately came to mind: one, they call people alerting them of “fraudulent accounts”, hoping that it scares the people bad enough that they will react by divulging personal information that can be used to open accounts. or. two, they have bad debts that they’re trying to hang on anyone who is scared enough to divulge information, so that they can report it to credit reporting agencies and possibly be paid by a panicked consumer. the 2nd may seem farfetched, but i’ve had a similar experience with someone calling and claiming that i’d written a hot check and to come in and pay it immediately. when i asked for a copy of the check before i’d pay, it mysteriously became unavailable. (it wasn’t mine and i knew that from the start.)
whomever it was and whatever their purpose was, *something* was wrong with that phone call. be very very careful if you receive similar calls. do NOT ever divulge ANY personal information to someone who calls YOU. ask them for their name and a number you can reach them at. then look up the company and call them directly. let them connect you to the person who called. the same holds true with emails. never click through a company’s email to go to a url or reply to their email, unless you KNOW that the email is trustworthy. personally, even if i believe / know the email is trustworthy, i still refuse to click through. i go directly to the company’s website myself.
it’s entirely possible, as a 3rd scenario, that it was just a mistake (though they did have my name) and they called the wrong person.
it’s better to be safe than sorry, however!
Survey of Consumer Finances
Feds Cut Interest Rate
Homes Facing Foreclosures Doubles
Credit Freeze Laws, Effective Nov 1st
New Study on Identity Theft
in debt we trust
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