Newspaper article St Louis Post-Dispatch (MO)

Move Is a Mixed Bag for Investors

Newspaper article St Louis Post-Dispatch (MO)

Move Is a Mixed Bag for Investors

Article excerpt

If you keep your money in a bank account, say hooray for the Federal Reserve.

After five long years, the Fed began Friday to lead you out of the desert of slowly declining interest rates on your savings accounts.

But if you invest in the stock market, grab your worry beads.

Some analysts think that Friday's 2.4 percent drop in the Dow Jones Industrial Average was a one-day panic attack. They think the market will recover, maybe as soon as next week.

But in a market that's prospered on low interest rates, higher rates can be poison.

The Fed on Friday nudged short-term interest rates up slightly in a bid to head off future inflation. The Fed Funds rate, the interest banks charge one another for overnight loans, inched up to 3.25 percent from 3 percent.

"It was a little bit of tinkering, just to let people know they're keeping an eye on things," said Carl Enloe, chief investment officer at Mark Twain Bank.

It was the first time in five years that the Fed pushed interest rates upward.

By itself, the push was too slight to have a major impact on people who borrow money or save at banks, analysts said. The concern was that the Fed might not be satisfied with a onetime preemptive strike on inflation and that rates might move higher as the economy recovers.

In that case, the effects would ripple through the economy in the form of higher interest for savers, higher loan rates for borrowers and an uncertain time for stock investors.

Here's what Friday's move may mean for you:

Small savers: The Fed's move should mean somewhat higher rates on money-market accounts at brokerages and banks. Rates on short-term certificates of deposit should also tick upward, but only slightly. The rate on six-month Treasury bonds, for instance, went up only a tenth of a percentage point Friday. Home equity loan borrowers: You're probably safe for now.

Payments on many home-equity loans here are linked to the prime rate. The prime should stay at 6 percent until the Fed nudges rates up another quarter-point, says David Jones, an economist at Aubrey G. …

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