Tuesday the Federal Reserve Board met and left the federal funds rate unchanged despite the news of Lehman Brothers’ bankruptcy and the buy-out of Merrill Lynch. The federal funds rate, which banks charge each other for over-night deposits, will remain at 2%. The prime interest rate will follow suit, remaining at 5%. Consumers are more familiar with the prime interest rate because the rates for home equity loans/lines of credit and credit cards are tied to the prime rate.
Although there has been several significant downturns with Wall Street and banks in our country this week the Federal Reserve felt that inflation is high and lowering the rate could cause an increase in inflation. The Feds expect inflation to moderate through the next quarter. Tuesday’s meeting laid the groundwork for a rate reduction before the end of the year.
As always, if you have questions about how this affects you, please don’t hesitate to ask.