Fed holds interest rates steady for now
The federal government’s main lever on interest rates is holding steady for now, but credit card users shouldn’t count on that to continue for long.
The Federal Open Market Committee said Wednesday that the economy still needs support from its existing low rates, but it left the door open to a hike later on.
“The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen,” the April statement said.
In its official statement issued at the end of its two-day meeting Wednesday, the committee dropped a sentence about the risks of global and financial developments, which had appeared in its previous policy announcement in March.
The committee’s next meeting is June 14 and 15.
The committee sets a fundamental price tag on money. Changes in its benchmark federal funds rate are quickly reflected in banks’ prime rate. And when the prime rate goes up, so do APRs that consumers pay on variable rate credit cards. Almost all general purpose cards have adopted variable rates, which allow them to raise rates on existing balances when market rates increase.
The FOMC set its current federal funds target range – 0.25 percent to 0.5 percent – in December 2015, an increase of one quarter of 1 percentage point. In addition to boosting APRs on credit cards, the hike may have contributed to a sell-off in the stock market, which lost about 10 percent of its value by mid-February.
Since then, however, stocks have stabilized, and economic fundamentals are showing resilience. As a result, analysts expect the Fed to add another quarter-point to the federal funds rate as early as June, in order to move rates closer to long-term norms. In a fully healthy economy, the rate should eventually reach about 4 percent, Fed projections say.
Previous FOMC coverage: Cardholders spared APR increase
Published: April 27, 2016
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