Newspaper article International Herald Tribune

Banks Drag on Fed's Plan to Lift Growth

Newspaper article International Herald Tribune

Banks Drag on Fed's Plan to Lift Growth

Article excerpt

As the Fed's actions have pushed down some important rates, the ones that consumers borrow at have not fallen anywhere near as much.

Ben S. Bernanke, the Federal Reserve chairman, has said the central bank's new stimulus is meant to help Main Street.

One way to gauge the extent to which Main Street might benefit is to look at the interest rates ordinary people pay on their mortgages, credit cards and car loans. Those rates, however, do not make the strongest case for Mr. Bernanke's being a man of the people.

Since 2008, the Federal Reserve has purchased $2.75 trillion worth of bonds. On Thursday, it promised to keep buying bonds until it felt comfortable that the job market was properly back on its feet.

The Fed's purchases aim to drive down borrowing costs for companies and consumers. In theory, this will make them more likely to take out loans to buy goods and services, stimulating the wider economy.

By some measures, the Fed's policies have worked. Mortgage rates have fallen to multidecade lows, large companies have had no trouble issuing bonds, the economy is growing, and the private sector has been adding jobs for months.

The Fed's largess has even helped borrowers much farther down the credit scale. Lenders are making lots of subprime auto loans right now. A total of $14 billion in such loans has been packaged into bonds and sold to investors this year, according to Fitch Ratings. At the rate companies are lending, the 2012 total for subprime car loans could exceed $20 billion, which would put this year on par with 2005, a boom year.

In many cases, borrowers could be getting an even bigger benefit, but they have yet to see it. As the Fed's actions have pushed down some important rates, the ones at which consumers borrow have not fallen anywhere near as much.

The federal funds effective rate, one short-term rate that banks use to lend to one another, is at 0.14 percent. That compares with a rate of 3.62 percent in September 2005.

The 10-year Treasury note has a yield of 1.87 percent, down from 4.2 percent in 2005. Those are huge declines.

Yet the cost of credit card loans has hardly budged. The Fed's own data show that the average U. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.