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Fed Rate Cut May Raise Some Rates

Aired June 25, 2003 - 14:16   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.


MILES O'BRIEN, CNN ANCHOR: While we were talking the Fed announced it did in fact lower interest rates. That's not. What we were wondering about is how many basis points? Twenty-five basis points which stands for a quarter of percentage point is what the Fed has done lowering interests rates. Some thought maybe 50 basis points or a half of a percentage point. That's not what happened.
Let's turn to an expert, shall we? We just turned to Orelon to talk about tornadoes, let's talk turn to Jennifer Openshaw to talk a little bit about interests rates. Twenty-five basis points, quarter of a percentage point. What does that mean?

JENNIFER OPENSHAW, FINANCIAL EXPERT: Well in terms of consumer's pocketbooks it doesn't mean a whole lot because the market has already priced it in over the last several weeks. Mortgages and other rates have come down a little bit. In fact, if anything, it means that rates might come up slightly and the reason is this: as we just heard earlier we were expecting between a quarter point and a half a point to come at a quarter point when the market had priced it right in the middle means again that the rates might slightly come up.

And again, I think the only area where we might see that is mortgages which is hovering around 5 percent record lows.

O'BRIEN: All right, let's get a little tote card up here so we can tell people basically what wee think will be affected and how it might be affected. Mortgage rates you said actually could go up, but basically we're going to put a sideways arrow on it for now?

OPENSHAW: Just light slightly.

O'BRIEN: Credit card rates, what is going to happen there?

OPENSHAW: I don't think we're going to see much there. The reason is that, boy, you can get introductory credit card rates at zero percent, those have been around for some time. And because consumers have been hopping around so much, the credit card companies, if anything, are going to increase them a little bit.

O'BRIEN: Oh, yes, that's the way it goes, isn't it?

OPENSHAW: That's the way it goes.

O'BRIEN: Auto loans, we're already at zero percent. I guess they are not going to go to negative percentage, are they?

OPENSHAW: What can they do? I mean they are at zero percent, they are very much being affected by the economy, trying to sell those cars. And for consumers I think many people to a million people out of work, we need to be saving for -- those reserves for times when you may be out of work.

O'BRIEN: All right. A lot of folks might be in money markets now with the stock markets in the dumper. And this is going to hurt them significantly, perhaps?

OPENSHAW: You know, money market rates are really low, as well. I think that if anything, again, it's a great time to get back into the market. I really do believe that a bond, bond funds, of course, have done very well. I don't think that people should stay on the sidelines too long because, first of all, studies show when you do you miss out on the market.

I also, by the way, think that if you have money to invest in real estate, even though people are saying, gosh, I think are we going to face a housing bubble when prices drop? I think that if you can find some good buys it's a great opportunity for your money because of the leverage opportunity and the other tax advantages.

O'BRIEN: Now, home equity loans. If you're sitting on a bunch of equity is this a good time to tap into it?

OPENSHAW: Well, if anything folks are looking to refinance because, again, rates are so low. So I think the smarter thing is to look to refinance to a lower rates and pay off those home equity loans, if indeed, you did pick one out earlier.

O'BRIEN: So maybe do a cash-out deal on a refinance or something like that?

OPENSHAW: Yes.

O'BRIEN: All right, let's talk about tips. You mentioned debt. No matter what you're talking about the first thing you should do as a consumer is pay off your debt, right?

OPENSHAW: Well, the reason it is so important is because Mr. Greenspan last month had expressed concerns about deflation. I don't think we'll go there. But what that means for consumers is that prices would drop. That means our wages could drop which means it could be harder for us to pay off our debt.

So it's extremely important that we do pay off the debt especially now that rates are so low if indeed we need to borrow money to pay off that higher interest rate credit card.

O'BRIEN: Now, as far as refinancing goes, many of us refinanced over the past 12 months. Is it time to get the calculator out again and try to figure out if it's wise to do it yet again?

OPENSHAW: Absolutely. I've got to tell you, I did it. I saved several hundred dollars on a home. Indeed it is. It does depend on how long you expect to hold the home, be in that home or own it. But there's a really good chance that it may make sense. So talk to somebody who can do the numbers for you, absolutely.

O'BRIEN: All right, and a couple of other things consumers need to be aware of. First of all your investments in certain corporations. Is this going to affect the bottom line, do you think?

OPENSHAW: Well, corporations, again, their margins are being squeezed because they are not seeing growth. And, until they see volume of consumers or businesses buying their services, they are going to continue to be impacted. We see it, for example, with automobiles and airlines, prices have come down. And from an investment perspective that may not be such a great bet.

O'BRIEN: And, finally, you have a note here about government services and don't expect those potholes to be filled any time soon?

OPENSHAW: Well, by the way, I serve on a commission in California, we very much look at these issues. Governments across the country are really strapped into the billions of dollars. Until this economy gets going and they get more tax receipts, we are going to see further reductions in services, I think.

O'BRIEN: Jennifer Openshaw, thank you for your advice. Appreciate it. I hope you are all taking notes at home. That was some good advice.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com







Aired June 25, 2003 - 14:16   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MILES O'BRIEN, CNN ANCHOR: While we were talking the Fed announced it did in fact lower interest rates. That's not. What we were wondering about is how many basis points? Twenty-five basis points which stands for a quarter of percentage point is what the Fed has done lowering interests rates. Some thought maybe 50 basis points or a half of a percentage point. That's not what happened.
Let's turn to an expert, shall we? We just turned to Orelon to talk about tornadoes, let's talk turn to Jennifer Openshaw to talk a little bit about interests rates. Twenty-five basis points, quarter of a percentage point. What does that mean?

JENNIFER OPENSHAW, FINANCIAL EXPERT: Well in terms of consumer's pocketbooks it doesn't mean a whole lot because the market has already priced it in over the last several weeks. Mortgages and other rates have come down a little bit. In fact, if anything, it means that rates might come up slightly and the reason is this: as we just heard earlier we were expecting between a quarter point and a half a point to come at a quarter point when the market had priced it right in the middle means again that the rates might slightly come up.

And again, I think the only area where we might see that is mortgages which is hovering around 5 percent record lows.

O'BRIEN: All right, let's get a little tote card up here so we can tell people basically what wee think will be affected and how it might be affected. Mortgage rates you said actually could go up, but basically we're going to put a sideways arrow on it for now?

OPENSHAW: Just light slightly.

O'BRIEN: Credit card rates, what is going to happen there?

OPENSHAW: I don't think we're going to see much there. The reason is that, boy, you can get introductory credit card rates at zero percent, those have been around for some time. And because consumers have been hopping around so much, the credit card companies, if anything, are going to increase them a little bit.

O'BRIEN: Oh, yes, that's the way it goes, isn't it?

OPENSHAW: That's the way it goes.

O'BRIEN: Auto loans, we're already at zero percent. I guess they are not going to go to negative percentage, are they?

OPENSHAW: What can they do? I mean they are at zero percent, they are very much being affected by the economy, trying to sell those cars. And for consumers I think many people to a million people out of work, we need to be saving for -- those reserves for times when you may be out of work.

O'BRIEN: All right. A lot of folks might be in money markets now with the stock markets in the dumper. And this is going to hurt them significantly, perhaps?

OPENSHAW: You know, money market rates are really low, as well. I think that if anything, again, it's a great time to get back into the market. I really do believe that a bond, bond funds, of course, have done very well. I don't think that people should stay on the sidelines too long because, first of all, studies show when you do you miss out on the market.

I also, by the way, think that if you have money to invest in real estate, even though people are saying, gosh, I think are we going to face a housing bubble when prices drop? I think that if you can find some good buys it's a great opportunity for your money because of the leverage opportunity and the other tax advantages.

O'BRIEN: Now, home equity loans. If you're sitting on a bunch of equity is this a good time to tap into it?

OPENSHAW: Well, if anything folks are looking to refinance because, again, rates are so low. So I think the smarter thing is to look to refinance to a lower rates and pay off those home equity loans, if indeed, you did pick one out earlier.

O'BRIEN: So maybe do a cash-out deal on a refinance or something like that?

OPENSHAW: Yes.

O'BRIEN: All right, let's talk about tips. You mentioned debt. No matter what you're talking about the first thing you should do as a consumer is pay off your debt, right?

OPENSHAW: Well, the reason it is so important is because Mr. Greenspan last month had expressed concerns about deflation. I don't think we'll go there. But what that means for consumers is that prices would drop. That means our wages could drop which means it could be harder for us to pay off our debt.

So it's extremely important that we do pay off the debt especially now that rates are so low if indeed we need to borrow money to pay off that higher interest rate credit card.

O'BRIEN: Now, as far as refinancing goes, many of us refinanced over the past 12 months. Is it time to get the calculator out again and try to figure out if it's wise to do it yet again?

OPENSHAW: Absolutely. I've got to tell you, I did it. I saved several hundred dollars on a home. Indeed it is. It does depend on how long you expect to hold the home, be in that home or own it. But there's a really good chance that it may make sense. So talk to somebody who can do the numbers for you, absolutely.

O'BRIEN: All right, and a couple of other things consumers need to be aware of. First of all your investments in certain corporations. Is this going to affect the bottom line, do you think?

OPENSHAW: Well, corporations, again, their margins are being squeezed because they are not seeing growth. And, until they see volume of consumers or businesses buying their services, they are going to continue to be impacted. We see it, for example, with automobiles and airlines, prices have come down. And from an investment perspective that may not be such a great bet.

O'BRIEN: And, finally, you have a note here about government services and don't expect those potholes to be filled any time soon?

OPENSHAW: Well, by the way, I serve on a commission in California, we very much look at these issues. Governments across the country are really strapped into the billions of dollars. Until this economy gets going and they get more tax receipts, we are going to see further reductions in services, I think.

O'BRIEN: Jennifer Openshaw, thank you for your advice. Appreciate it. I hope you are all taking notes at home. That was some good advice.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com