Busy day of news, Fed holds rates steady and banks reduce fees
September 23, 2009 by admin
The clear cut winners from today’s news were consumers. The FOMC policy to keep interest rates intact for the Fed Discount and Fed Funds rate was anticipated by almost everyone in the economy. The key news was not related to the Fed’s decision to leave interest rates unchanged; more specifically it was the news that the Fed would be extending their policy of supporting the purchase of mortgage backed loan securities into 2010. This move is a significant boost to existing home owners who have yet to refinance and potential home buyers looking to purchase in the next few months. Today’s announcement should be a significant factor in helping to keep interest rates at their current historic low levels. The Fed began supporting the secondary mortgage market in December of last year and has been instrumental in helping to keep rates low, finally spurring some positive traction on the housing front as witnessed over the last several months with key reports on both new and existing home sales. The yield on the ten year bond moved lower with the news and could push into the low three percent range, further driving down long term interest rates for the balance of the year.
The stock market sell off was somewhat of a surprise. The market has been rallying with an eye on the ten thousand point mark for the DOW. The news that the Fed remains very cautious with growth in the coming corners, is somewhat contradictory to testimony from Ben Bernanke and Warren Buffet over the last few weeks, that seemed to spark optimism with the chance of a quick rebound. The Fed clearly understands that a return to economic prosperity relies strongly on the labor front. With the national unemployment rate hovering near ten percent, there remains little optimism that the economy will have a V-shaped recovery.
Consumers won a key battle with the banking system today. Two of the nations largest depository banks (Bank of America and JP Morgan Chase) announced they would be altering their overdraft policy. Consumer advocacy groups have been challenging the current overdraft practices in the banking industry, and area that provides a significant amount of revenue, put preys on the most troubled consumers in the economy. The major area of focus is banks allowing consumers to utilize their debit cards for purchases that exceed their account balance, and then issuing overdraft fees on this process. The majority of consumer groups are requesting that consumers have to opt into this service with their bank as opposed to this being and industry standard, to help and protect consumers. The banking industry has suffered numerous black eyes over the past twenty four months and appears to have little wiggle room or face Congressional interaction to begin changing their policies. Congress has also put the banking industry on notice of their intentions to try and push forward a credit card reform bill to be adopted into law earlier than previously projected, another move to try and help struggling consumers.