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Federal Reserve slashes interest rates to zero

washingtonpost.com

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Re: Federal Reserve slashes interest rates to zero

#4

Post by bluedevil2k »

majos wrote: post #2

Dumb question: does this mean normal citizens can take out loans at near-0% interest, or something close to that? I know credit card interest rates are typically tied to “the fed rate” but a but higher?

The Fed rate is the interest rates that the Fed pays banks for their deposits in the Fed. By lowering it, they’re incentivizing the banks to loan the money and provide liquidity into the market. Since banks need to make a profit on everything, they’ll loan the money out at a higher rate for things like mortgage, car loans, and credit cards. Depending on the credit worthiness and the collateral, the rates will differ (mortgage lower than an unsecured credit card). Ultimately, the Fed lowering the rates will lower all interest rates, but you’ll never get to 0% as a consumer.

Re: Federal Reserve slashes interest rates to zero

#6

Post by myoon »

majos wrote: post #2

Dumb question: does this mean normal citizens can take out loans at near-0% interest, or something close to that? I know credit card interest rates are typically tied to “the fed rate” but a but higher?

No, this is the fed fund rate, which is just for banks to borrow really short term (overnight usually) to each other. Most consumer loans are based on the prime rate, which has a few points added to the fund rate to cover the cost of borrowing.

Re: Federal Reserve slashes interest rates to zero

#7

Post by xxpor »

bluedevil2k wrote: post #4
majos wrote: post #2

Dumb question: does this mean normal citizens can take out loans at near-0% interest, or something close to that? I know credit card interest rates are typically tied to “the fed rate” but a but higher?

The Fed rate is the interest rates that the Fed pays banks for their deposits in the Fed. By lowering it, they’re incentivizing the banks to loan the money and provide liquidity into the market. Since banks need to make a profit on everything, they’ll loan the money out at a higher rate for things like mortgage, car loans, and credit cards. Depending on the credit worthiness and the collateral, the rates will differ…

>but you’ll never get to 0% as a consumer.

Unless we see negative fed rates. Not that I think going so negative we see consumer level 0% mortgages is likely.

Re: Federal Reserve slashes interest rates to zero

#8

Post by colinbartlett »

My "high interest" savings accounts already took a recent haircut and this will accelerate that. I understand that's the idea: make investing attractive and savings unattractive. But for a regular joe like me, this is exactly the time I want to be saving more so it stings.

Re: Federal Reserve slashes interest rates to zero

#9

Post by brianpgordon »

bluedevil2k wrote: post #4
majos wrote: post #2

Dumb question: does this mean normal citizens can take out loans at near-0% interest, or something close to that? I know credit card interest rates are typically tied to “the fed rate” but a but higher?

The Fed rate is the interest rates that the Fed pays banks for their deposits in the Fed. By lowering it, they’re incentivizing the banks to loan the money and provide liquidity into the market. Since banks need to make a profit on everything, they’ll loan the money out at a higher rate for things like mortgage, car loans, and credit cards. Depending on the credit worthiness and the collateral, the rates will differ…

One note... what you're describing is the IOER rate, not the fed funds rate. But other than that you're spot on.
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