12/14/2005

Have Rates Risen High Enough?

The overnight lending rate between banks was raised yesterday for the 13th time since June 2004, to 4.25 percent. The Federal Reserve may now be indicating "rates have risen to a level that doesn't spur economic growth", and that monetary policy for the first time in 2 years is not described as providing "accommodation" to the nation's economy. Banks typically raise their rates in anticipation of an upward movement by the Federal Reserve, so those changes have already occurred for now. Credit card rates, home equity line rates, and adjustable mortgages will be the most sensitive to upward rate changes. CD's & fixed-rate mortgages benefit or are not affected by an upward rate change. However, other language in their report hints at leaving the door open to increases in the future.

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