Rates To Remain At Record Lows Says Federal Reserve

The Federal Reserve is hopeful that economic recovery is on the way. According to them, economic activity is continuing to rise. The housing market has also begun to grow stronger as well. These, they say, are essential to a sustained economic recovery.

However, Ben Bernanke, Chairman of the Federal Reserve, and his colleagues issued a warning that the economy is not yet completely on the way to health. There is still the threat of the rising unemployment rate and credit has become quite hard to get for a lot of consumers and business. These could still put a stop to the recovery of the economy in the coming months.

Because of these threats to economic recovery, the Federal Reserve announced that it would keep the bank lending target range at the historically low levels that they are currently in. This means bank lending rates will remain at 0% to 0.25%. The programs designed to assist the recover of the housing market by driving down mortgage rates are also going to stay in place. Prime lending rates for commercial banks, a number used to peg the rate of home equity loans will also remain at 3.25%. As will a number of credit card and consumer loans. This is the lowest that these rates have been in decades.

Even with these changes in place, consumer credit card rates have still risen to record highs in the past few months. Credit card companies are busy changing their credit card terms partly as a response to the escalating credit card loan defaults that credit card companies are seeing and partly as a preparation for the coming activation of the Credit CARD Act.

The Credit CARD Act is a set of legislation meant to protect credit card holders by introducing several legislations aimed at prohibiting the more predatory practices of credit card companies, one of which is sudden rate hikes. In preparation for legislation against sudden rate hikes, credit card companies have raised interest rates ahead of time accounting for the high credit card interest rates consumers are seeing despite the very low rates from the Federal Reserve.

Right now, the Federal Reserve has moved to a different phase in dealing with the economic recession. Instead of fighting against the recession, the Fed is now managing the recovery of the economy from the most difficult financial crisis the U.S. has ever faced since the Great Depression. Once the economic recovery is finally in place, the Federal Reserve would most likely begin to raise interest rates. The majority of analysts believe that this would not begin until the coming spring or summer. A reliable indicator would be when the Fed would take back its promise of keeping the rates at very low levels for an “extended period”.