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For Consumers, Fed’s Expected Rate Hike Is Unlikely To Cause Shock And Awe

For Consumers, Fed’s Expected Rate Hike Is Unlikely To Cause Shock And Awe

By Jim Puzzanghera, Los Angeles Times (TNS)

WASHINGTON — Federal Reserve policymakers are expected to end months of speculation Wednesday and raise a key interest rate for the first time in nearly a decade.

But for average Americans hoping for noticeably higher returns on their savings or fearing a sharp increase on credit card, auto loan or mortgage rates, the waiting is likely to continue.

“It’s much like that first dusting of snow,” Greg McBride, chief financial analyst for financial information website Bankrate.com, said of the much-anticipated Fed rate hike. “That’s not what cancels school and messes up traffic. But it’s the signal that winter’s coming.”

Fed Chair Janet Yellen and her colleagues would be sending a symbolically powerful signal that they believe the economy finally has recovered enough from the Great Recession to start reversing seven years of holding the central bank’s benchmark short-term interest rate near zero.

But the increase in the so-called federal funds rate this week is likely to be minuscule: just 0.25 percentage point. The next similarly small move probably would not come until March or even June.

Yellen has stressed that the Fed plans to move slowly so the rate, which is used to set terms for many consumer and business loans, would remain low for a while. Low rates encourage consumers and businesses to spend rather than save, which boosts economic growth.

The small increase — coupled with the lingering effects of the central bank’s unprecedented stimulus efforts — would increase the typical delay it takes for consumers to feel any effect from a rate change, experts said. This time, the lag is expected to be lengthier because the rate has been so low for so long and the Fed is going to inch it up gradually.

“The rate increase is likely to be tiny, and I’m not sure it’s going to have an effect that will shock and awe anybody,” said James Chessen, chief economist at the American Bankers Association.

The Fed’s actions also get diluted as they flow through the financial system, particularly to the savers who have been hardest-hit by the near-zero interest rate. Savers shouldn’t anticipate a bump in their balances any time soon because banks, squeezed by low rates and holding record-high deposits, aren’t eager to start paying out more to their customers.

The federal funds rate applies to short-term lending between banks from the reserves they hold at the Fed. But the rate affects other borrowing costs and has become a benchmark for savings accounts, certificates of deposit, credit cards, auto loans, small business loans and home equity lines of credit.

The federal funds rate has less of a direct effect on longer-term loans, particularly mortgage rates. Those rates generally have already risen in anticipation of Fed action.

The last time the Fed began a period of rate boosts was in 2004, when it made a similar 0.25 percentage point move. It increased rates 16 more times over the next two years.

©2015 Los Angeles Times. Distributed by Tribune Content Agency, LLC.

Photo: Michael Daddino via Flickr

 

Credit Card Travel Tips

Credit Card Travel Tips

Regardless of which season lures you with its wealth of travel options, credit cards are a necessity for just about everything. So letting your guard down when you make reservations, pony up payment, or leave your hotel room is a recipe for trouble. Bankrate.com has some good tips for credit card safety that will serve you well both on the road and at home.

If you’re going to be away, it’s always a good idea to let your credit card issuer know so they don’t flag you as having unusual purchases away from your home territory. And the same phone call can also make them alert to credit card theft. These are especially important if you’re using a debit card.

Travelling outside the U.S.? Be sure to check out those foreign transaction fees before you go – they can really add up.  While you’re at it, foreign ATMs require an all-digit PIN so be sure to memorize yours in that format.

Finally, remember that when you use your card you’re spending real money, so it’s a good idea to set a budget in advance so there are no surprises when you get the bill.  You can always keep a tally by checking your purchases on your Smartphone’s bank app.

Photo: Wikimedia.com

Putin Eyes Russia Credit Card System After Western Sanctions

Putin Eyes Russia Credit Card System After Western Sanctions

By Anna Smolchenko

Moscow (AFP) — President Vladimir Putin on Thursday said Russia should create its own national payment settlement system, in a bid to reduce economic dependence on the West amid the controversy over Moscow’s seizure of Crimea.

“In countries such as Japan and China these systems work, and work very well,” Putin told lawmakers in televised remarks.

“Initially, they started out solely as national systems limited to their own markets, their own territory, their own population but they are becoming more popular right now.”

“Why should we not do it? We should definitely do it and we will do it,” he said, noting that Russia’s Central Bank and the government have been looking into the matter.

Last week the United States hit more than 20 Russian officials, including some of Putin’s closest allies, with sanctions over Moscow’s takeover of the Black Sea peninsula of Crimea from Ukraine. A lender described as a “crony bank” for the Russian elites, Bank Rossiya, was also blacklisted.

As a result of punitive measures, several banks last week saw their customers barred from using Visa and MasterCard credit cards, prompting talk among officials and lawmakers that Russia should create its own operational network.

“It’s a great shame that some companies have taken a decision on certain restrictions,” Putin said.

“I think it will simply lead to a loss of certain segments of the market for them, and a rather profitable market at that.”

Finance Minister Anton Siluanov said on Wednesday that the government had no plans so far to jettison Visa and MasterCard.

“But at the same time we are beginning to pay more attention to the creation of our own payment settlement system,” he said in televised remarks.

U.S. President Barack Obama has threatened to target the broader Russian economy if Moscow moves into eastern Ukraine after its takeover of Crimea.

This week, Washington and its partners in the G8 club of leading industrialised countries cancelled an upcoming summit in the Black Sea resort of Sochi in a bid to punish Russia further.

Putin has shrugged off the sanctions, insisting Moscow will conduct an independent foreign policy and would not take orders from the West.

Ratings agencies Standard and Poor’s and Fitch last week revised Russia’s outlook to negative from stable, citing the direct and anticipated impact from the sanctions and the country’s increasing isolation.

Some Russia officials dismissed the revision, claiming the move was politically motivated.

The speaker of the Russian parliament’s upper house, Valentina Matviyenko, suggested at the meeting with Putin that foreign ratings agencies — which have put Russia on negative outlooks amid the crisis — are driven by an agenda dictated by foreign governments.

“I believe it’s necessary to finally think about the creation of our own rating agencies,” said Matviyenko, one of the officials targeted by U.S. sanctions.

Many analysts say Putin, the country’s paramount leader for the past 14 years, is consciously pushing Russia towards the path of self-insulation in a bid to preserve his hold on power.

Economists fear the confrontation with the West will see the Kremlin undo many of the reforms pushed through after Russia embraced capitalism and opened up to the outside world following the collapse of the Soviet Union in 1991.

But many ordinary Russians say a greater degree of self-autonomy would be a boon for the country that would allow it to finally wean the economy off oil and gas and cut reliance on imports.

Vedomosti Business Daily said in an editorial Thursday that the government was facing the daunting two-pronged task of supporting the stagnating economy and finding “the least painful ways of partial isolation.”

Economy Minister Alexei Ulyukayev warned Thursday that the country risked growth of just 0.6 percent this year, with capital flight expected to reach $100 billion.

Igor Nikolayev, director of the FBK Institute of Strategic Analysis, said creating Russia’s own credit card system could take one or two years, but it will unlikely be recognized outside the country.

AFP Photo/Maxim Shipenkov