The Fed and the Rate Increase

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Timing is everything.  The Fed announces a rate increase today the effects if which will be felt after the holiday shopping season is over.  We’ll see higher credit card rates in January, when people are trying to pay off the debts they have racked up in December.

The Fed could have implemented the rate increase in October or November, but doing it then might have affected consumer spending during the holidays.  Doing it in December is a present to both retailers and to investors looking for a life in stock prices before year end.

There was no economic data mandating a December increase rather than one in the prior couple of months.

Nor is here a need for credit card rates to go up in response to the Fed action.  Card rates are in the stratosphere relative to the Fed discount rate.  But card rates will go up.  You can “bank” on that.

What the Fed is missing is the great economic divide.  Most families have little or no money for discretionary spending.  This will squeeze them further.

Fed rates, including today’s increase:

United States Fed Funds Rate

Credit card rates

The average rate on a variable rate credit card has been over 15.7% for the last three months, while the Fed rate was 0 percent.

If you carry balances on your credit cards, you’re actually paying a fortune for those airline miles.

 

 

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