Fed urges Americans to buy more on credit

WASHINGTON (Reuters) – The Federal Reserve's landmark statement this week that interest rates are unlikely to rise this year sends a signal to US households: keep buying goods.

The Fed is trying to guide the US economy by controlling the interest rates banks charge each other for day-to-day loans. Raising this rate increases other rates of the economy, making it more expensive to use the credit card or purchase a house or a car. Higher rates also encourage companies to rethink their investments.

A solid majority of Fed decision-makers on Wednesday said that a rate hike is unlikely this year, prompting investors to bet that the economy could slow down enough so that the Fed can actually cut its rates .

Here are some possible consequences for US households:

EASY CREDIT

The Fed's signal on its interest rate outlook has resulted in a drop in market key rates, including the 10-year Treasury yield. This is a sign that rates are also falling for loans used to buy homes and cars. Interest rates on credit cards can also drop. Mortgage rates have been falling since November, when Fed policymakers made it clear that they would be patient in the face of rate decisions.

SAVE THE DECOURAGES

Lower rates also encourage spending by avoiding some common ways of saving money. Low returns reduce the return on money from savings accounts as well as funds made up of sheltered state bonds. This poses a problem for retirees who are more dependent on their savings income and lower rates on Treasury bonds. The Fed argued that retirees benefited from measures taken to support the economy in general.

BOOST OF RETIREMENT

Higher stock prices are the opposite of lower bond yields. This increases the value of private retirement accounts, such as 401 (k) s, especially those of youth whose accounts tend to be weighted in equities.

The benchmark, the S & P 500, rallied after the Fed's decision, reflecting the view that lower cost borrowing costs would contribute to corporate profits. It is possible that the gains of the stock market stimulate consumer spending, because citizens sometimes loosen the strings of their stock market after an increase in perceived wealth.

Prosperous job market

The US unemployment rate is close to its lowest level in 50 years, although signs of a slowdown have recently emerged in the labor market. Hiring slowed sharply in February and the number of new jobless claims each week also increased. The Fed's action aims to keep the labor market strong. This could help encourage more people to relaunch job searches that they had abandoned while the economy was still weak as a result of the 2007-09 financial crisis.