The latest attempt by the Federal Reserve to revive the economy has been labeled Operation Twist. By driving down interest rates over the long-term, the Fed hopes to get the economy humming again. However, experts report that the move will not greatly affect credit card users, savers, or people purchasing cars or homes.
Mixed results are the best that can be expected from the $400 billion portfolio shuffling by the central bank. Borrowers will continue to benefit from lower interest rates on fixed-rate loans and mortgages.
At the same time, savers will watch interest income for long-term bonds decline. If the economy does manage to start righting itself, investors may see their financial portfolios climbing.
However, the initial response from investors has not been positive. On Wednesday and Thursday, following a suggestion from the Fed that the economy may struggle for years, a sell-off occurred.
The European debt crisis and unstable housing and employment markets are stifling efforts at sustaining any economic improvement. If Operation Twist does prove successful, it may be more so for what it prevents-a second recession- than what it creates.
According to Greg McBride, a senior financial analyst at Bankrate.com, Operation Twist will have little effect on U.S. consumers. Keeping mortgage rates low will not in itself stimulate a housing boom. Prospective buyers are delaying their purchases due to a lack of confidence, not because they view rates as too high.
Many credit cards feature variable interest rates for purchases and cash advances that are linked to the prime rate. If the Fed keeps rates low through mid-2013, the prime rate should also stay low.
However, declining credit card rates will not follow. In fact, they will rise if the economy does not improve. Rates for good and bad credit auto financing will also be unaffected by Operation Twist.
