Consumers should see benefit of Fed’s patience


By Stan Choe - AP Business Writer



NEW YORK (AP) — So much for those worries about rising interest rates.

Just a few months ago, rising rates were bearing down on everyone from home buyers to stock investors after the Federal Reserve put through seven quarter-point increases in 2017 and 2018.

This year, the Fed has changed course. In January, it opened the door to a “patient” approach to further rate increases. Then on Wednesday, the central bank surprised the market when it said it may not raise rates at all during 2019.

The move — or anticipated lack of moves — reverberated immediately through the bond market, and the yield on the 10-year Treasury note tumbled to its lowest level in more than a year. It fell as low as 2.52 percent, down from 2.61 percent late Tuesday and from more than 3.20 percent as recently as November, as traders priced in expectations for a slower economy and tame inflation, as well as this very patient Fed.

The impact should soon filter out to consumers across the economy, and the effects will likely remain for a while. The yield on the 10-year Treasury, which influences rates for all kinds of consumer loans, could drift higher over the next year, but it’s not likely to cross above 2.75 percent, said Ed Al-Hussainy, senior currency and rates analyst at Columbia Threadneedle Investments. That would mean rates for the next year would remain lower than they’ve been for much of the past year.

Here’s a look at some of the move’s beneficiaries:

• Borrowers: When the Fed was busy raising interest rates for much of the last few years, rates on credit-card borrowing were quick to follow.

The average rate on credit-card accounts that were charged interest was 16.86 percent in the last three months of 2018, according to the Federal Reserve. That’s up from 14.99 percent a year earlier.

• Home buyers, home owners: A drop in mortgage rates would be welcome for buyers as they head into the spring home buying season.

The average rate on a 30-year fixed mortgage has been trending down since November, falling with Treasury yields. It was at 4.28 percent this week, down from 4.94 percent a little before Thanksgiving. Wednesday’s tumble for Treasury yields indicates mortgage rates have room to fall further.

Such an easing would be welcome help for the housing market, which struggled last year as potential buyers got priced out by rising mortgage rates. It could also mean opportunities for people who already own homes and are looking to refinance.

• Stock investors: Lower interest rates can encourage borrowing and more economic growth, and stock investors are nervously scrounging for the latter given a slowing global economy.

Lower rates can also make stocks more attractive as investments because they make the competition look worse: A Treasury bought today will pay less in interest than one bought before. Stocks that pay high dividends can get a particularly big boost from low rates because their payouts look more lucrative.

By Stan Choe

AP Business Writer

AP Business Writers Josh Boak and Sarah Skidmore Sell contributed to this report.

AP Business Writers Josh Boak and Sarah Skidmore Sell contributed to this report.