Interest Rates Drop Again

[Joubert[$]]

Remember when we talk about the Federal Reserve dropping interest rates that we're really discussing the federal funds rate, that is, the rate at which banks borrow money from each other. Conventional monetary policy states that cuts in this rate have a trickle down effect into the larger macroeconomy with some lag, generally considered to be 6 to 12 months.

Some analysts are arguing now that there should be no more interest rate cuts until consumer spending is checked. Many feels are overextended. To steal a pithy phrase from Mr. Reagan, are you better off now then you were a year ago?

Maybe, maybe not.

Your 401(k) portfolio is probably suffering or at least not growing as fast as in previous years. Credit card rates have probably come down, even if you're not the company's best customer (as they define best, which has nothing to do with whether you faithfully pay your bill).

Meanwhile, Alan Greenspan has more power and celebrity than any previous Fed Chairman since Paul Volcker. Some pundits question whether that reputation is swollen with hype or deserved.

So, do you track interest rates when the Fed moves them? If so, why? And at what level do you think the Fed should go to prop up capital markets? Wall Street barely noticed today's move. Would a half point move have triggered a mini stock rally? And even though such pandering (oops) is not in their charter, should the Fed's actions even consider them?

[KateTPZ]

Originally posted by joubert
To steal a pithy phrase from Mr. Reagan, are you better off now then you were a year ago?

I am in better shape financially than I was a year ago, with the exception of my 401K. I'm not stressing over that, however, just enjoying the ability to get out of debt and have a mortgage rate that isn't sky high. Ask me again in 5 years, though, and I'm sure the poor performance of that 401K will be a bigger issue!

I pay attention to rates, but not excessively. I don't have much in the way of investments (OK - that's an overstatement!), and confess that the stock market is almost a complete mystery to me. Economics isn't my strong suit, I'm afraid.

Interesting question, though.

[mrisch[$]]

I track them for one reason and one reason only - I need to refinance my house. I bought at 8.4%, and now can refinance for under 7%. HUGE difference. Lowering my mortgage by hundreds of dollars a month would significantly increase my well being.

[murasaki]

I track interest rates for the sake of refinancing my house also. But I'm doubting if they'll drop low enough to make it worth my while.

My mutual funds have suffered since last year. I won't have a 401k until next January (when the government opens up the Thrift Savings Plan to the military).

However, I'm in a much better financial position because when I got married, my income doubled (my husband and I are the same rank so we get roughly the same pay), even accounting for two separate households and a mortgage on my house that's not rented currently.

--naomi