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CNN Live At Daybreak

Will the Average Consumer Benefit From Interest Rate Cut?

Aired June 26, 2001 - 08:01   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL LIN, CNN ANCHOR: The Fed waits for its first five interest rate cuts to have an impact. And while it waits, Fed policymakers open a two-day meeting on the economy. The betting is that another interest rate cut is coming. But will you benefit. And, if so, when?

Valerie Morris now on your dollars and cents.

(BEGIN VIDEOTAPE)

VALERIE MORRIS, CNN CORRESPONDENT (voice-over): During the last year, the Federal Reserve has cut interest rates five times -- the aim: to simulate the economy by making it cheaper for households and businesses to borrow money. Traditionally, lower interest rates give consumers the most help on mortgages and credit card debt.

The Federal Reserve is expected to cut interest rates by at least a quarter percentage point on Wednesday. But financial specialists say consumers shouldn't expect much immediate relief. Here's why: Long-term mortgage rates are tied to the Treasury bond market and react in anticipation of Fed policy moves, sometimes up to a year in advance.

So, as the Fed began aggressively cutting rates last January, the popular 30-year fixed mortgage rate was well on its way to some of the lowest levels in years.

David Berson of Fannie Mae says don't expect a dramatic move in mortgage rates after Wednesday's expected rate cut.

DAVID BERSON, FANNIE MAE: The impact on fixed rates is likely to be very little. But, still, mortgage rates remain extremely low today and low on an historical basis. So homebuyers today are still getting a pretty good deal even if mortgage rates don't go down when the Fed eases.

MORRIS: And what about credit cards? While, traditionally, it's consumers with fixed-rate credit cards that miss out when the Fed cuts rates, these days, not even variable-rate cardholders are guaranteed any relief.

That's because some cards have already reached their rate floors, which are established by credit card companies as protection from interest rate cuts. About a quarter of all variable-rate cards in the U.S. have these lower limits. TRAVIS PLUNKETT, CONSUMER FED OF AMERICA: On your variable-rate card, there is no ceiling -- that is, they can charge rates as high as they want to. But there may be a floor -- that is, at a certain point, if the cost of money goes way down, those rates will hit a bottom and won't go below it.

MORRIS: Industry observer CardWeb.com says if the Fed continues to lower rates, more companies could add rate floors to their cards. Check the fine print to see if yours does.

Valerie Morris, CNN Financial News, New York.

(END VIDEOTAPE)

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