The Federal Reserve’s rate-setting committee, caught between threats of inflation and recession, left a key short-term interest rate unchanged Tuesday. Following a round of cuts that began in 2007, the Federal Open Market Committee last trimmed interest rates on April 30.
Committee members voted 10-1 today to hold the federal funds rate at 2 percent. “Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress,” the Fed said in the statement accompanying the announcement.
With risks essentially balanced between inflation and economic weakness, the Fed provided itself with flexibility to see what develops. “The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability,” the Fed said. The dissenting vote came from Dallas Federal Reserve President Richard W. Fisher, “who preferred an increase in the target for the federal funds rate at this meeting.”
The latest decision provides banks with some leeway when it comes to consumers’ credit card bills. Most consumers with variable-rate credit cards — and that’s most cardholders — have their rates indexed to the prime rate. Since banks always peg their prime rates to the federal funds rate, the prime rate will also remain unchanged.
No relief for credit cards
Analysts don’t see the Fed’s latest decision providing relief for cardholders. When it comes to credit card issuing banks, “They’ll sit tight,” says Donald Dutkowsky, professor of economics in the Maxwell School of Citizenship and Public Affairs at Syracuse University. “They might even raise credit card rates because the economy is tough, especially in the financial sector right now.”
Still, that doesn’t mean that individual cardholders shouldn’t shop around. Banks “may give individuals a break, but they’ve always done that for individuals with excellent credit,” Dutkowsky says.
See related: “Lower credit limits can hurt consumers’ credit scores”
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