The Federal Reserve has just released its latest attempt to stir up the otherwise stagnant and bogged-down economy, termed “Operation Twist.” This initiative is led with one clear goal in mind and that is to keep long-term interest rates as down as they can be.
Unfortunately, most sources and economists are predicting, this shouldn’t help too much. Instead of bandaging the economy’s wounds, it appears to be tearing them back open.
“Mixed at best,” predicted Arnold Taubman, the resident economic expert at Credit-Land.com. “Some areas will see some boosts, including lower rates on mortgage and possibly also other fixed-rate loans. That seems to be the extent of the happy news, though.”
Mortgage rates lead the pack, in terms of priority. The $400 billion being set aside by the Fed is intended to buy longer-term “Treasuries.”
Principle payments are targeted to be invested from securities. The motivation there is to keep mortgages low, so consumers will feel okay about buying real estate again. Right now, interest rates are already at about the lowest in forty years.
“They average, presently, 4.09% on a 30-year fixed mortgage,” commented Taubman. “A lot of this depends on consumer confidence and that is ailing at the moment.”
As for consumer debt, we recently saw an influx of that. However, perhaps Operation Twist can reverse that trend, as most credit cards have variable rates that depend flatly on the prime rate.
Consumers should then be content with the concept that the interest rates will be fairly low until somewhere in the middle of 2013.
“Sure it sounds good,” said Taubman. “But credit cards aren’t going to get any lower, sadly, as much as we would like to see that turn into a reality. They might even rise, because the prime rate and the federal rate aren’t co-dependent.”
Credit cards aren’t alone in walking away, unfettered; the same holds true for auto loans.
“Perhaps ‘Operation Twist’ will end up doing more harm for the economy rather than aiding it. We can only see after its effects have been carefully studied and analyzed and that will be a while,” concluded Taubman.
Michael German is an expert in the field of personal finance and a graduate of Columbia University. His lengthy tenure includes literary work with The New York Times international weekly edition, where he contribute reports on global economy and consumer trends.